Trinco: insolvent trading proven against de facto director

In the matter of Trinco (NSW) Pty Ltd (in liq) [2025] NSWSC 993 (Brereton J)

Trinco operated as a management company for another company, known as Trinity Constructions.  Trinity Constructions generally acted as the head contractor on construction projects, whilst Trinco entered into contracts for the supply of labour and materials for those projects. 

Mr A was the director of Trinity Constructions, whilst Mr A’s sister, was the director of Trinco. 

By the time that Trinco and Trinity Constructions collapsed, Trinco had incurred significant unpaid trading debts.  Trinco traded for almost three years after being insolvent since July 2018, until the appointment of administrators. Mr A’s sister, the director of Trinco, was made a bankrupt, and the insolvent trading claim against her, as the director of Trinco, was commenced but not pressed in those circumstances.  

The key question in the case was whether Mr A was a de facto director of Trinco, even though he was never formally appointed as a director of Trinco.  

If this proposition were to be made out, , it could be claimed that he contravened s 588G of the Corporations Act, which applies when a director of an insolvent company – having reasonable grounds to suspect that the company is insolvent, or would become insolvent – fails to prevent the company from incurring debts.    

Whether a person acts in the position of a director within the meaning of s 9AC(1) of the Corporations Act invites attention to the duties and functions that attach to the office of a director, which will vary depending on the type of company in question.

In Trinco’s case, it effectively operated as a division of Trinity Constructions by entering subcontracts to support Trinco’s projects.  Trinco relied on funding from Trinity Constructions to pay subcontractors.  Trinity Constructions’ employees effectively instructed Trinco on which subcontractors to retain and which suppliers to use.  Mr A, who said under cross-examination that he “ran Trinity”, was the ultimate decision maker. 

So, whilst Ms A (Mr A’s sister) managed the routine day-to-day accounting activities for the contracts between Trinco and its sub-contractors, Mr A handled all issues and problems arising with any contractor or supplier engaged by Trinco.  He outwardly dealt with Trinco’s creditors on the basis that he was ultimately in charge.  

His Honour accepted that Mr A believed that he was not a director Trinco, but the test for whether a person is, or not a director is subjective.  Ultimately, His Honour found that the “buck stopped” with Mr A and he was a director of Trinco.

Next, his Honour found Trinco was insolvent from 1 July 2018 until the appointment of liquidators in December 2021, based on an unchallenged expert report from an independent expert insolvency practitioner.

His Honour found that most of the debts incurred whilst Trinco was insolvent were incurred by Trinco within the meaning of s 588G.  On the issue of proof of the trading debts, his Honour accepted that:

• the dates of the invoices reflected the date on which the debts were incurred; or

• where there were no invoices available, but the liquidator had reconciled claims made by a proof of debt with Trinco’s MYOB records.    

His Honour agreed that the taxation liabilities claimed were also debts for the purpose of s 588G.  Based on an authority decided after the commencement of the proceedings, his Honour did not accept that debts incurred pursuant to court orders and judgments could be debts for the purpose of s 588G. 

The contravention of s 588G was made out once his Honour found that a reasonable person in Mr A’s position would have been aware of reasonable grounds to suspect that Trinco was insolvent, and that Mr A failed to prevent the debts from being incurred.  The defence in s 588H based on taking “reasonable steps” to prevent the debt from being incurred was not made out.  

Finally, his Honour concluded that the liquidator could recover the insolvent trading debts as a debt due to Trinco from Mr A, under s 588M, where:

• those debts were unsecured; and

• reflected the loss or damage suffered by the creditors. 

In this case, the insolvent trading debts also reflected the amount of that loss where there would have been no other return to the creditors, but for this successful claim.