In the matter of Leralais Pty Ltd [2025] NSWSC 893

In a recent Supreme Court of New South Wales decision, a property development company successfully resisted a winding-up application by proving it was solvent, despite having several unsatisfied judgment debts it was unwilling to pay.¹

Key takeaways

1. Winding-up proceedings are not just another enforcement measure. The Court will not order a company be wound up (notwithstanding a debt to the petitioning creditor), where its solvency can be established to the Court’s satisfaction. In making this assessment, the Court will consider evidence of financial performance, the ability to raise funds, and how readily these may become available.
2. Presumption of insolvency where enforcement measures are partially or unable to be executed v ‘returned’. The failed or partial execution of enforcement measures such as a garnishee order or writ for the levy of property does not constitute the said processes being ‘returned’. Therefore, the presumption of insolvency prescribed in section 459C(2)(b) of the Corporations Act 2001 (Cth) (the Act) cannot be established. ²

Brief facts

Xela Projects Pty Ltd (Xela), a building company, was contracted by property developers Leralais Pty Ltd (Leralais) to build townhouses in Bowral, NSW. The relationship subsequently turned and Xela commenced several proceedings against Lerelais in the District Court of New South Wales, resulting in three judgments totalling $867,107.61 in its favour.

Leralais filed a cross-claim against Xela, alleging that it did not owe the amounts claimed and seeking restitution under the Building and Construction Industry Security of Payment Act 1999 (NSW).³

Apart from $90,947.35 recovered via a garnishee order, Xela was unable to enforce the judgment debts and subsequently commenced proceedings to wind up Lerelais. Lerelais contended that it was solvent and able to meet the outstanding judgment debts, but unwilling to do so until its cross-claim was determined.

Solvency

The statutory test for solvency is that a company is solvent if ‘it can pay its debts as and when they become due and payable.’⁴ 

It was accepted that the judgment debts were ‘due and payable’ within the meaning of this section. The Court’s decision, however, turned on the evidence of solvency relied on by Lerelais.

Leralais’ principal assets include the Bowral townhouses held via the Leralais Family Trust. Although the properties were mortgaged to a related-party lender for approximately $2.92 million, it was apparent that there was significant equity in the properties should it be required.⁵

The Court noted that a strong asset position alone would not be enough to prove solvency, particularly given the illiquidity of those assets. The ability to raise funds quickly was highly relevant in establishing solvency.⁶

Lerelais claimed that approximately $2.6 million was available via a loan facility from the parents-in-law of its director, Mr and Mrs Sekulic. They gave evidence that $776,160.26 (the net balance of the judgment debts) had been paid into the trust account of Lerelais’ lawyer. In other words, the disputed sum was immediately accessible should Leralais choose to pay Xela.⁷

The Court was satisfied:

‘that the commercial reality is that if Leralais was willing to pay Xela, it could readily do so within a short period (hours or days, not weeks).’⁸ Further contending that ‘it does not matter that the resource is an unsecured borrowing or a voluntary extension of credit by another party.’ ⁹ 

In considering the relevance of external funds, the Court must be convinced that there ‘would be a sufficient likelihood for the company, and those directing it, to be able to rely upon the availability of those funds when incurring the relevant debts,’ as Lerelais was able to do in this instance.¹⁰ 

Enforcement and presumption of insolvency

Xela relied on the presumption of insolvency under section 459C(2)(b) of the Act, arguing that it arose where the execution of a process issued against the company was returned wholly or partially unsatisfied.¹¹

The evidence however told another story. The garnishee order had been executed (albeit partially) when the Commonwealth Bank paid $90,947.35 on 26 August 2024. Therefore, it was not ‘returned’ unsatisfied as required by the statute. The partial satisfaction also occurred more than three months before the winding-up application was filed (17 December 2024), so the presumption did not arise.

The writ for the levy of property, issued on 16 October 2024, led to three failed sheriff’s attempts to levy properties in Ingleside and Bowral, the result of which were documented via notices of non-levy. As a result, the writ was also not formally ‘returned’ within the meaning of rule 39.51 of the Uniform Civil Procedure Rules 2005 (NSW) to engage the presumption of insolvency.¹²

There was no evidence to suggest that Xela had made any request, nor had there been any return of the writ to the District Court of New South Wales. The notices of non-levy provided to Xela did not equate to the ‘return’ of the writ(s).¹³

The Court concluded that the processes remained unexecuted, not ‘returned’, as required under the Act and as such, no presumption of insolvency could exist.¹⁴ His Honour further commented that Xela would have had a higher likelihood of success if Lerelais had a presumption of insolvency that needed to be overcome.¹⁵ 

The originating process was dismissed, with an order that Xela pay Lerelais’ costs.

Implications

Winding-up proceedings are not to be considered another enforcement method to be used when other methods have proved ineffective. The basis of the application is to wind up companies which are determined to be insolvent.

The decision confirms that the Court will consider many avenues by which a company may establish solvency. In this instance, the availability of funds from outside sources was vital in Lerelais being able to do so.

Creditors seeking to bring applications before the Court should ensure that a presumption of insolvency can be established before commencing proceedings.
 

^[1]In the matter of Leralais Pty Ltd [2025] NSWSC 893

^[2] Corporations Act 2001 (Cth) section 495C(2)(b)

^[3] Building and Construction Industry Security of Payment Act 1999 (NSW)

^[4] Corporations Act 2001 (Cth) section 495C(2)(b)

^[5] In the matter of Leralais Pty Ltd [2025] NSWSC 893, [40]-[44]

^[6] ibid [45]

^[7] ibid [47]

^[8] ibid [48]

^[9] ibid [46]; Lewis v Doran (2004) 208 ALR 385, 116

^[10] ibid [46]

^[11] Corporations Act 2001 (Cth) s 459(2)(b)

^[12] Uniform Civil Procedure Rules 2005 (NSW) r 39.51

^[13] In the matter of Leralais Pty Ltd [2025] NSWSC 893, [13]

^[14] ibid [16]

^[15] ibid [55]