Proof of debt v “argue later”: why the Court refused leave in Taringa Property Group Pty Ltd v Kenik Pty Ltd (in liq) [2025] QSC 222
When a contractor goes into liquidation, construction creditors often assume the only sensible way forward is to keep litigating so the “real” merits can be decided by a judge. Taringa Property Group Pty Ltd v Kenik Pty Ltd (in liq) [2025] QSC 222 is a timely reminder that, once a company is wound up, the default position shifts sharply: the proof of debt process is ordinarily the correct forum, and the Court will only grant leave to continue proceedings where there is a good reason to depart from that regime.
The decision is particularly relevant to principals and developers who have paid (or paid into Court) substantial sums following a security of payment adjudication, and then face the contractor’s insolvency mid-dispute.
Background: adjudication, payment into Court, and a “pay now, argue later” dispute
The dispute arose from a design and construct contract entered into on 3 August 2020. Taringa Property Group Pty Ltd (as trustee) engaged Kenik Pty Ltd to design and construct a retail complex at 222 Moggill Road, Taringa. Taringa terminated the contract on 29 August 2023.
Kenik then pursued an adjudication under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act), claiming $9,689,767.44 (incl GST). On 15 February 2024, the adjudicator determined a progress payment of $4,218,787.02 (incl GST) was payable, and judgment was entered on 21 February 2024.
Taringa challenged the adjudication decision and sought a stay. As a condition of that challenge being heard, Taringa paid $4,825,708.11 into Court on 4 March 2024 (the adjudicated amount plus fees and interest). Taringa also commenced separate “final rights” litigation on 26 March 2024.
In that proceeding, Taringa claimed $11,601,295.32 (incl GST), said to comprise $5,320,846.36 in overpayments and $6,280,448.96 in damages (predominantly completion costs). A second plaintiff (Derek Lowe Superannuation Pty Ltd as trustee) claimed recovery of a further $1,000,000 payment in the alternative.
Although the adjudication challenge was dismissed on 6 December 2024, Taringa later obtained a stay of enforcement pending the final rights proceeding, on terms including further money being paid into Court. Taringa paid a further $1,597,940.94 into Court, representing estimated interest up to 30 June 2026, bringing the total held to $6,332,572.69.
There were also subcontractor charge claims and a payment withholding request. Of the funds held, $803,267.16 was treated as retained for those third-party claims under the BIF Act.
The turning point: Kenik is wound up
On 20 February 2025, Kenik was wound up in insolvency. That liquidation triggered s 471B of the Corporations Act 2001 (Cth), which stays the commencement or continuation of court proceedings against a company in liquidation unless leave is obtained.
Taringa and the superannuation trustee applied for leave to proceed with their Supreme Court claims against Kenik notwithstanding the liquidation. The liquidators opposed the grant of leave.
The legal framework: serious issue, and a “good reason” to avoid proof of debt
The Court accepted the orthodox position: while s 471B confers a broad discretion, the general rule is that claims against companies in liquidation should proceed via the proof of debt process (with the liquidator admitting or rejecting the claim, and a right of appeal to the Court if required).
In practical terms, the applicant must generally satisfy two threshold propositions:
1. there is a serious question to be tried (or arguable merit); and
2. there is a good reason why it is not appropriate to leave the applicant to the proof of debt procedure in the particular case.
In Taringa, the “serious question” threshold was not controversial. The real contest was whether there was a good reason to depart from proof of debt.
Why the plaintiffs said leave should be granted
The plaintiffs’ case for leave was essentially threefold. They argued the Supreme Court proceeding would finally determine the parties’ contract rights (including variations, the adjusted contract sum, and any net amount payable one way or the other). They also relied on the fact substantial money had been paid into Court, contending that only the continuation of the proceeding could properly facilitate orders dealing with those funds (including in relation to subcontractor charge claims and the payment withholding request). Finally, they pointed to the procedural history and the work already done in the managed proceeding as favouring continuation.
Why the Court refused leave: proof of debt was adequate, and creditor prejudice was decisive
Williams J dismissed the application.
A key aspect of the reasoning was that the plaintiffs’ claims were, in substance, monetary claims: recovery of alleged overpayments and damages. Those are precisely the kinds of claims that are admissible in a proof of debt process. The case did not involve the recognised “exceptions” where the proof of debt procedure is inadequate—such as proprietary claims to specific property, or relief that can only be granted by judicial order (injunctions, specific performance, rescission, and the like).
Critically, the Court rejected the proposition that refusing leave would create an inability to deal with the funds held in Court. While any payment out of Court would, as a practical and legal matter, require a court order, that did not mean the underlying dispute must proceed as ordinary litigation to judgment. The Court considered there was no impediment in principle to the dispute being resolved through the proof of debt process (including by agreement or compromise), with appropriate applications then being made for orders about the monies held in Court.
The decisive factor, however, was prejudice to the general body of creditors. The evidence was that the liquidators were unfunded and Kenik had no cash. Defending a complex construction proceeding through to trial would likely consume substantial amounts (hundreds of thousands of dollars for preparation and mediation alone, with further costs for trial), divert the liquidators from their functions, and reduce the pool available to unsecured creditors. The Court was concerned that granting leave would force the liquidators into an “impossible position”: either find funding quickly or risk default, thereby compromising the creditors’ interests.
In circumstances where the proof of debt regime could deal with the dispute, that creditor prejudice outweighed the factors favouring continuation of the Supreme Court proceeding.
Practical implications for construction industry participants
For principals and developers, the decision reinforces an uncomfortable reality: if your contractor enters liquidation, the Court will not automatically permit you to continue “final account” proceedings, even where a security of payment adjudication has led to funds being paid into Court. You may be pushed into a proof of debt process—potentially with less procedural machinery than a managed court proceeding—unless you can point to a genuine exception (for example, a proprietary claim to specific funds, or relief that cannot be proved in the winding up).
For liquidators (and creditors generally), the decision affirms that s 471B is designed to protect the collective process of liquidation from being derailed by expensive and time-consuming litigation, particularly where the dispute can be dealt with by the proof of debt procedure and any necessary court orders can be sought afterwards to implement the outcome.