A Landmark Ruling Made in Condev Construction Liquidation

A Landmark Ruling delivered in Condev Construction Liquidation affirms the position of the Liquidators

 

In the anxiously awaited decision of Re Condev Construction Pty Ltd (in liquidation) [2025] QSC 173  the liquidators of Condev Construction Pty Ltd (in liquidation) have been successful in obtaining judicial confirmation of their proposed course of conduct, defeating contrary arguments by the Commonwealth regarding set-off, priority, and the distribution of assets during the winding up. The decision follows complex and contested proceedings that have drawn national attention across the insolvency and construction sectors.

 

Background: Condev’s Collapse

Condev Construction, a prominent commercial builder based in Queensland, entered liquidation in March 2022 amidst soaring material costs, labour shortages, and project delays caused by COVID-19 and extreme weather events. The collapse had wide-reaching impacts, affecting employees, subcontractors, and major developers throughout the region.

The joint and several liquidators, Jason Bettles and James Robba of Worrells, were appointed following a shareholder resolution under section 491(1) of the Corporations Act 2001 (Cth) (the Act). Cronin Miller Litigation acted on their behalf throughout the proceedings.

 

The Banking Relationship: Westpac’s Role and Security Interests

At the time of the liquidation, Westpac held comprehensive security interests over Condev’s assets, including an All Present and After Acquired Property (All PAP) interest registered on the PPSR. These interests stemmed from a 2008 Fixed and Floating Charge, with Condev owing Westpac over $6.2 million.

Upon Condev’s liquidation, a legal debate emerged around whether Westpac’s security over certain Condev-held accounts and deposits (the so-called “ADI Account Debts”) had been extinguished by the operation of section 553C of the Act (dealing with mutual set-off), or alternatively, surrendered when Westpac lodged its proof of debt and voted as a creditor.

Despite the liquidators’ arguments, Westpac obtained orders in May 2023 confirming it had not surrendered its security. At stake were millions in funds held in Condev’s frozen accounts that Westpac sought to offset against Condev’s debts.

 

Commonwealth Intervention: The FEG Claim

The Commonwealth of Australia, through the Department of Employment and Workplace Relations, intervened in the liquidation under the Fair Entitlements Guarantee Act 2012 (Cth). Having paid out employee entitlements, the Commonwealth claimed priority under section 561 of the Act, which gives unpaid employee claims precedence over secured creditors in certain scenarios.

The Commonwealth strongly challenged the liquidators’ intention to distribute proceeds in accordance with section 556 (the usual priority regime). It went further—alleging serious misconduct and statutory breaches by the liquidators, including:

• Ignoring section 561 when distributing funds;
• Wrongly allowing Westpac to exercise a right of set-off;
• Improperly deducting liquidator costs and remuneration from circulating assets; and
• Committing breaches so serious they warranted personal liability and judicial inquiry.

 

Judicial Advice and Adversarial Turn

In response, the liquidators sought judicial advice under section 90-15 of the Insolvency Practice Schedule regarding how to treat Condev’s Westpac-held funds and the application of set-off provisions.

However, what began as a procedural application soon escalated into a fully contested matter. Both Westpac and the Commonwealth were granted leave to be heard. The case culminated in a two-day hearing before Justice Bradley in October 2023 with further written submissions being called for at the commencement of 2024.

 

The Commonwealth’s Cross-Application

Relevantly, prior to the October hearing, the Commonwealth filed a cross-application seeking a suite of declarations and repayment orders, including:

• That the Westpac-held funds were subject to a circulating security interest under section 561;
• That Westpac was not entitled to set-off under either section 553C or at general law;
• That the liquidators were required to repay sums deducted from those funds and distribute them in priority to employee entitlements; and
• That Westpac must remit over $900,000 to the liquidators for distribution in accordance with section 561.

 

Key Legal Issues

The hearing involved detailed argument on a range of technical insolvency issues, including:

• Whether Westpac’s set-off rights were valid;
• Whether section 561 displaced liquidator entitlements and general priority rules;
• Whether set-off could still apply under general law if section 553C was inapplicable;
• Whether funds in Condev’s project bank accounts (protected under Queensland’s Building Industry Fairness laws) could be claimed by the Commonwealth; and
• Whether the Commonwealth’s approach aligned with recent precedent, including the BCA National Training Group case of Commonwealth of Australia v Tonks [2023] NSWCA 285.

 

The Decision

Justice Bradley’s was delivered on 24 July nearing two years after the original hearing. The liquidators were successful on the following key points:

1. Judicial Advice on Debt Recovery and Circulating Security Interests

• The court advised that the liquidators would be justified in not causing the company to pursue Westpac (the second respondent) for debts owed by Westpac to Condev immediately before the winding up.
• The liquidators would also be justified in not treating money paid by Westpac to Condev since the commencement of the winding up as property comprised in or subject to a circulating security interest of Westpac as at the commencement of winding up. This was largely because of the valid operation of set-off rights under s 553C of the Corporations Act and because the court determined that these funds, after set-off, were not subject to a circulating security interest at the relevant time.

2. Set-Off Rights Affirmed

• The court held that Westpac was entitled to exercise its right of set-off under s 553C of the Corporations Act, not being displaced by either the interests of priority creditors or other statutory provisions.
• The Commonwealth’s argument that set-off could not apply to secured debts or in circumstances involving property subject to a circulating security interest was rejected. The statutory set-off operated in favour of Westpac in these circumstances.

3. Dismissal of Commonwealth’s Application

• The court dismissed the application made by the Commonwealth (the first respondent), which had sought orders to require the liquidators to distribute certain property in a way that would have negated the set-off rights and altered the priority of payments.
• Relevantly the court disagreed with the arguments on behalf of the Commonwealth that priority payment triggers and insufficiency of assets for s 561 purposes should be assessed at the date of the appointment of the liquidators. His Honour Bradley J referenced the recent decision of Commonwealth of Australia v Tonks [2023] NSWCA 285 in reaffirming that a liquidator is only required to assess sufficiency (and engage s 561) when enough information is available. As the secured debts were discharged and no contest remained between secured and priority claims by the time of assessment, s 561 did not operate;
• The Commonwealth’s argument that its claim as a priority creditor ranked ahead of the Liquidators right to be paid any other general remuneration and expenses failed entirely. 

4. Liquidators’ Costs

• The court ruled that the liquidators’ costs of the proceedings formed part of their costs in the winding up.
• Furthermore, the Commonwealth was ordered to pay the liquidators’ costs for both the amended application and the subsequent application, as well as the costs incurred by Westpac.

5. Priority and Timing of Payment Orders

• The court accepted the liquidators’ position regarding the timing for the assessment of the sufficiency of funds and other preconditions under s 561 of the Corporations Act. The assessment could not and need not be made until the liquidators had adequate information—in line with recent appellate precedent.

6. No Notice of Insolvency to Displace Set-Off

• The court held that Westpac did not have the necessary notice of Condev’s insolvency prior to relevant transactions. Thus, Westpac retained the benefit of statutory set-off and the liquidators were justified in recognising those set-offs.

The decision has been well-received by the Liquidators of Condev , but should also be a welcome relief to the industry given the potential implications for insolvency practitioners had the Commonwealth succeeded in its arguments. Of course, this may just be round one!