Background
The plaintiffs, Darren John Vardy (as liquidator) and NPC Advisory (TC) Pty Ltd, sued Armstrong Scalisi Holdings Pty Ltd to recover $275,000 allegedly advanced to the defendant company. The defendant remained in provisional liquidation throughout. On 2 March 2026, Justice Markovic entered a default judgment against the defendant for the full amount. A statutory demand was subsequently served on the defendant based on the judgment debt.
Teddy John Panella, the sole director of the defendant company, applied on 15 July 2026—on the eve of the deadline to set aside the statutory demand—for leave under s 198G(3)(b) of the Corporations Act 2001 (Cth) to cause the company to apply to set aside the default judgment and to commence a separate proceeding to set aside the statutory demand.
The application was opposed by both the plaintiffs and the defendant’s provisional liquidators. Evidence showed that as of November 2024, Panella had total assets of approximately $100,000 and liabilities of approximately $5.1 million. At a public examination in December 2024, Panella gave evidence that he had no role or association with the defendant and was director “in name only.” He had also failed to appear at a prior examination, resulting in a bench warrant and a subsequent costs order against him for $15,000 on an indemnity basis—costs that remained unpaid with a bankruptcy notice issued.
Justice Goodman dismissed the application. The court identified two principal grounds for rejection. First, the proposed defence was not sufficiently arguable. Panella’s draft defence argued that the $275,000 had been received into a trust account for the benefit of Sydney Exotic Aquariums Casula Pty Ltd (SEAC) and transferred to SEAC on 17 August 2023. While a creditor report from SEAC’s liquidator stated that the second plaintiff had lodged a proof of debt for funds “loaned to” SEAC in August 2023, this fell far short of establishing an arguable case to set aside the default judgment. The proposed defence was otherwise unsupported by evidence and was inconsistent with Panella’s prior sworn testimony that he had no role with the defendant.
Second, the court found that granting leave would expose the defendant to adverse costs orders without adequate protection for creditors. Although Panella offered an undertaking to meet any costs order, he was admittedly impecunious and therefore unable to fulfil such an undertaking. His suggestion that security be provided was too vague and impractical. The potential prejudice to the defendant’s creditors weighed heavily against granting leave. The court did not reach other arguments, including whether s 198G(3)(b) relief should be limited to contesting winding-up orders, as established precedent suggested.
This decision reinforces the strict procedural and substantive requirements for directors of insolvent companies seeking court approval to pursue litigation. Courts will not permit such litigation where the defence is weak and creditors face exposure to uninsured adverse costs orders. The case illustrates the tension between allowing directors a forum to challenge arguably unjust judgments and protecting creditors of insolvent companies from uncompensated litigation risk. Panella’s impecuniosity, combined with his prior testimony of minimal involvement and his non-cooperation with the provisional liquidators, indicated to the court that allowing him to use his director powers would be inconsistent with insolvency law principles.
The decision also signals that while s 198G(3)(b) approval is theoretically available for various purposes, courts apply a rigorous filter to protect creditor interests in provisional liquidation scenarios. Directors cannot rely on good intentions or undertakings they cannot fulfil; they must demonstrate both a serious, arguable legal foundation and a genuine capacity to manage costs exposure on behalf of the company.
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