Case Update: Barrett Group v Kenik

The Supreme Court of Queensland has rejected a request to stay a winding up application to allow the company to pursue litigation that it said would obviate the application.

Barrett Group, a Brisbane based interior fit-out and bespoke joinery manufacturer, sought an order that Kenik, a Victoria-based construction company, be wound up in insolvency for failing to comply with a statutory demand. Kenik did not deny that it was insolvent and could not pay its debts. However, it submitted that the Court should exercise its discretion under s 467(1) of the Corporations Act to stay the winding up application on the basis that Kenik would be engaging in mediation with a third party, Taringa Property Group (TPG), over a construction dispute between Kenik and TPG.

The dispute involved a construction project for a large shopping complex in Taringa. In August 2020, TPG as the principal engaged Kenik as contractor. The construction took much longer than anticipated, resulting in Kenik’s claimed construction costs being substantially higher than the contract price for the original scope of work. In September 2023, Kenik made a payment claim for nearly $10 million, which TPG rejected. Kenik made an adjudication application, and a decision in Kenik’s favour in the sum of over $4 million was released in February 2024. Kenik then obtained judgment from the Court in respect of the adjudicated amount.

Soon after that, TPG commenced proceedings seeking to have the adjudication decision declared void as a consequence of alleged jurisdictional error. Other proceedings were instituted by TPG and another party which effectively sought a finding that Kenik was not entitled to retain the adjudicated amount. In late February 2024, Kenik undertook not to enforce the judgment debt and TPG agreed to pay the adjudicated amount into court. In December 2024, the Court ultimately ordered that Kenik be restrained from enforcing the judgment debt until the determination of the other proceedings. Kenik has filed an appeal against that order.

In the meantime, in March 2024, Barrett filed the winding-up application based upon presumed insolvency as a result of Kenik’s failure to satisfy a statutory demand. Kenik relied on the decisions in Bungey v Magnate Projects Pty Ltd and Deputy Cmr of Taxation v TD Preece Pty Ltd, in which a winding up application was stayed until the entry of judgment in another proceeding. Kenik argued that the winding up application should be stayed pending its mediation with TPG, which was scheduled to take place within the month. According to Kenik, if that mediation resulted in an agreement which resolved the TPG claim in Kenik’s favour, then that would also resolve the appeal and the winding up application because the monies in court would be released and Kenik could pay its creditors. Alternatively, a stay would allow the appeal to be heard, which Kenik said would be resolved in its favour.

The Court disagreed and ordered that Kenik be wound up in insolvency. The Court distinguished the cases of Bungey and Preece on the basis that, in each of those cases, the proceedings were nearly complete. That was not the case here, where the proceedings were uncertain and unlikely to conclude soon. The Court stated that Kenik required “all the dominoes to fall in its favour” and, even if they did, the creditors would be left waiting even longer in what was already very protracted litigation. As a result, the Court concluded that there was no certainty that the litigation would resolve Kenik’s insolvency, and creditors should not be left waiting indefinitely for a speculative resolution.

Given these factors, the court determined that winding up Kenik was necessary and dismissed the request for a stay.

Read the decision here.

Professionals involved:

• Hugh Somerville of University Chambers (instructed by Rostron Carlyle Rojas) for Barrett Group
• Morgan Clarke of Lucinda Chambers (instructed by Colin Biggers & Paisley) for Kenik