In the matter of Luxe Coatings 2Pac Specialists Pty Ltd (administrators appointed)

HIS HONOUR: Before me is an originating process filed by the Workers Compensation Nominal Insurer seeking orders that Luxe Coatings 2Pac Specialists Pty Ltd be wound up, which is sought to be adjourned following the appointment earlier this month of Ms Amanda Lott as administrator of the company, pursuant to s 440A(2) of the Corporations Act 2001 (Cth). There is a residual discretion under s 467 to decline to make a winding up order, but the parties’ submissions have, appropriately, been confined to the specific provision of s 440A(2), and I shall proceed on the same basis, with the effect that the residual discretion, in its application to a case such as the present, takes the analysis no further.

Section 440A(2) obliges the Court to adjourn the hearing of the plaintiff’s application:

The authorities are clear, and there has been no dispute before me, that the onus rests upon the defendant to satisfy the Court that it is in the interests of the company’s creditors for the company to continue under administration. One circumstance where those interests may be satisfied is where an administrator is in the process of selling the company or its business in a way that could not occur in a liquidation, but that is not the present case. The authorities are conveniently collected in In the matter of Tahmoor Coal Pty Ltd [2026] NSWSC 74 at [52]-[54] and In the matter of Tahmoor Coal Pty Ltd (admins apptd) [2026] NSWSC 218 at [5]-[8].

The adjournment is opposed by the petitioning creditor. There is no evidence of the attitude of the Australian Taxation Office (which is the largest external creditor). The owner and sole director supports the adjournment, as do the company’s employees (it is not clear how numerous they are).

At the forefront of the evidence before me is the proposition that, notwithstanding the company’s recent financial performance, the proposed deed of company arrangement contemplates substantially improved profitability over the next two years, yielding a better return to all creditors including unsecured creditors.

In order to assess this, which was the main point debated between the parties, it is necessary to give a snapshot of the chronology and the company’s financial position and the proposed deed of company arrangement.

The principal unsecured creditors of the company which, according to the administrator’s report, conducted a cabinetry painting and coating business in northern New South Wales in the construction industry, are:

The indebtedness appears to have come about through sustained non-payment of Workers Compensation Insurance premiums and a variety of taxation obligations. The indebtedness of the company to the plaintiff was established by a judgment of the Local Court and the presumption of insolvency was established by the service of a statutory demand.

After the commencement of the winding up proceedings, Ms Lott was appointed as administrator by the company, which appears to operate as the trustee of a trading trust. Its sole director and shareholder is Mr Quinton Bevin Pratt. The company was incorporated in April 2023. The trust deed was not before me. There were suggestions in the evidence (which are not implausible) that upon the appointment of Ms Lott, the company ceased to be the trustee. The identity of the current trustee (if there is one) is unclear. As will be seen below, the projections appeared to presuppose that the company would continue to trade the business.

The essence of the proposed deed of company arrangement is for the company to, in effect, trade its way towards a partial payment of unsecured creditors, expected to be between 20 and 24 cents in the dollar. That is to occur by the creation of a deed fund of $170,000, to be taken out of trading profits in the amounts of $7,083.33 monthly for the next 24 months.

At the same time, Mr Pratt, who will, it is contemplated, continue to play a large role in business operations, is to receive payments (styled as “distributions”) of $7,000 per month. That contemplated regime contrasts in two ways with what has happened in the previous three financial years. It is no criticism of Ms Lott that there is some measure of ambiguity in the financial statements which, as I understand it, she has caused to be created for the purpose of advising those asked to participate in the deed of company arrangement.

Principally the ambiguity derives from a statement that Mr Pratt’s “owners drawings”, for the current partial financial year, have been some $240,576.35, roughly double the drawings in the two previous years. My working assumption, as raised during the hearing, is that those drawings, at least most recently, have been reflected in a “owners drawings” account, described as a loan account in paragraph 5.7 of her report. But for present purposes nothing turns on that, save to note that the drawings do seem substantially to have increased in the first nine months of the current financial year compared to the previous two years. Those do not appear to contribute to the underlying profitability shown in Ms Lott’s profit and loss statement. But the second matter does. That is, as Mr Kim has emphasised in submissions on behalf of the plaintiff today, the profit and loss statements for the last three financial years show a net profit for the current financial year, in contrast with the losses in the previous two financial years, but which net profit is wholly attributable to the fact that uniquely in the current year Mr Pratt has not taken any distributions from the company. (It is not entirely clear to me that there are separate financial statements prepared for the company as opposed to the trust.)

To be precise, the profit and loss statement records distributions to Mr Pratt of $40,057 for the financial year ended 30 June 2024 and $89,300 for the financial year ended 30 June 2025. The absence of any distribution in the first nine months of the current financial year is what permitted a net profit - a modest one of $52,587 - to be realised in the current financial year.

Mr Kim’s submission was, in effect, that the only reason the company had ceased to be loss-making in recent months was the decision by its owner to cease to receive distributions, and instead to obtain drawings. The former impacted upon profit, but the latter have been treated as giving rise merely to indebtedness (it appears that the accounts have been prepared on a cash, rather than an accruals, basis).

Neither Mr Pratt, nor anyone else, proposes to make any cash or property contribution in support of the proposed deed of company arrangement, save that, as a result of negotiations between him, the company and the Australian Taxation Office, he has, on the evidence before me, secured some form of finance (the lender is not known) to permit the payment of an “up-front $20,000 contribution” insisted upon by the ATO as the price of it considering the deed of company arrangement. The evidence (which is scanty) falls well short of establishing that if such payment is made, the ATO will support the deed of company arrangement. That said, the ATO had not expressed a view either in support of, or in opposition to, the adjournment application.

Under the proposed deed of company arrangement, Mr Pratt will be obliged personally to guarantee the company’s obligations.

In the event that his guarantee is called upon, Mr Pratt’s personal asset position is a little complex. A title search obtained by the administrator states that he has a 50 per cent interest in one parcel of real property, which is the family home shared by him and his former spouse, which “may become the subject of family legal proceedings”, according to the administrator’s report. But, in any event, the administrator’s understanding that, even in the absence of any dispute, Mr Pratt’s equity in the property is valued at approximately $200,000. Apart from that, the administrator had “no details of the director’s personal financial capacity”.

The position then, on the evidence supplied to me in support of the administrator’s application, may be summarised as follows.

First, the company, for the last two or more financial years, has been trading unprofitably, and so much so that it has, seemingly, neglected its compulsory obligations to pay for Workers Compensation insurance for its employees, contrary to s 155 of the Workers Compensation Act 1987 (NSW) and a suite of federal taxation obligations, and possibly New South Wales tax obligations as well.

Secondly, it is true that by dint of the absence of any distribution to Mr Pratt in the current financial year, there is on paper a net profit for the nine months that have so far elapsed. As I understand it, the non-payment of distributions to Mr Pratt is not proposed to continue into the future. In the cashflow projection supplied by the administrator over the next two years in support of the proposed deed of company arrangement, Mr Pratt is to receive distributions of some $84,000 each year. On the one hand, that is less than he had obtained in the previous years. On the other hand, that is more than the net profit recorded for the current financial year (and although only nine months of this financial year have elapsed, it is also more than the extrapolated annual net profit will be for the full financial year).

Thirdly, as the administrator properly discloses in her report, the company will, if the deed of company arrangement is approved, be obliged to record that on all of its correspondence and dealings. That of itself is apt to give rise to a question mark over whether the profitability, upon which the deed of company arrangement depends, will be sustained over the next two years. It is possible that some customers who formerly dealt with the company may be unwilling to do so when they read that it is subject to a deed of company arrangement. Certainly, there is no evidence that that will be of no concern to any of the company’s customers.

Fourthly, the projected revenue over the next two years is just enough to permit payment of ongoing taxation and workers’ compensation premiums, as well as to pay $7,000 to Mr Pratt and make a contribution of $7,093 to the deed fund, while remaining profitable. However, there is no explanation of why the projections of revenue – which apparently are substantially greater than what has in fact occurred in recent times – are realistic, especially given that the company will be trading subject to a deed of company arrangement.

Further, although it is important to have regard to the administrator’s opinion that creditors will receive a “greater, more certain and timely return” under the deed of company arrangement than if the company were placed into liquidation, that conclusion is derived solely from the cashflow projection. The reality of what is proposed is that it is contingent upon the company’s sustained profitable trading over the next two years, which is different from what has occurred previously, and even then there will be no return to creditors until two years have elapsed.

I was also asked to have regard to the appropriateness of a winding up in circumstances where the report indicated relatively large potential claims for insolvent trading, uncommercial translations and voidable related party transactions against Mr Pratt. There are obviously real difficulties with those claims, even assuming they are made out, amounting to any substantial addition to the assets available to creditors, bearing in mind the apparently limited asset position of Mr Pratt and, although not irrelevant, they are relatively on the periphery of the issue arising before me under s 440A(2).

It is also not necessary, in order to resolve the application before me today, to express any view as to the lateness of the application being brought.

Ultimately the issue is a very narrow one: has the administrator persuaded me that it is in the interests of the company’s creditors for Luxe Coatings 2Pac Specialists to continue under administration rather than be wound up?

For the reasons that I have sought to explain, I am not satisfied that that is so. For the reasons mentioned above, what is proposed is too contingent, and too optimistic, and on its face seems improbable and unrealistic, notwithstanding the view expressed by the administrator.

For that reason, I will dismiss the application for an adjournment, which has been brought informally, arising out of directions hearings, in the hearing of the winding up application.

The formal order is application for an adjournment brought by the administrator, Ms Lott, refused. I will note the plaintiff’s costs of the adjournment application to be plaintiff’s costs in the winding up proceedings.

[Thereafter Ms Lei was excused from further attendance, and Mr Kim moved on the winding up application.]

HIS HONOUR: By originating process filed on 16 February 2026, the Workers Compensation Nominal Insurer applies for the winding up of Luxe Coatings 2PAC Specialists Pty Ltd. Earlier this afternoon, I refused the relatively recently appointed administrator’s application to adjourn the winding up application, which has proceeded on an ex parte basis.

The application is in relatively familiar form. It is based ultimately upon a Local Court debt in the amount of dollars $77,563.97 dated 28 October 2025. That debt founded a creditor’s statutory demand and the evidence before me establishes that it was served on 5 November 2025.

The company has its registered office in Queensland, but the service of the originating process in this Court for winding up based upon the deemed insolvency for the non-satisfaction of the creditor’s statutory demand attached the appropriate notice under the Service and Execution of Process Act 1992 (Cth).

There is evidence that both at the time of service and today that there is no other winding up application pending, nor that any winding up order has been made.

I have the signed consents in evidence before me from the proposed liquidators, Mr Andrew John Scott and Ms Melissa Janet Mary Humann.

There is also evidence of notification to ASIC on 17 February 2026 and the publication by ASIC of notice of an application for winding up order on its Insolvency Notices website.

Finally, there is evidence that the whole of the Local Court judgment debt remains unpaid.

The applicable principles are settled. There is a presumption of insolvency arising from the non-compliance with the statutory demand, which is sufficient to support the winding up application, absent proof of solvency. There was in the earlier application before me an attempt by the administrator to prove, not solvency, but the viability of a regime of continued trading for the next two years, which did not persuade me that it was in the interests of the company’s creditors within the meaning of s 440A. The evidence in the earlier application, as it happens, confirms substantial indebtedness without any real prospect of displacing the presumption of insolvency brought about by the non-payment of the statutory demand.

For those reasons, the basis for a winding up application is established. I make the following orders as sought in the originating process.