Ironbark
22 October 2026
People often ask me who a liquidator can realistically sue when a company has been run into the ground. The person on the ASIC register is often a “man of straw”. The person who actually ran the business often isn’t on the register at all. Two recent decisions make it easier for liquidators to reach both.
What happened
Eastside Formwork: the unappointed director. In August, Justice Needham of the Federal Court of Australia (FCA) delivered judgment in the liquidator’s claims arising from the collapse of Eastside Formwork Pty Ltd ([2026] FCA 1140). The Court found the business was part of a phoenixing scheme, in which successive entities were used to leave creditors (most of all the Australian Taxation Office) unpaid. Mrs Connie Stojic was never formally appointed, and someone else was the registered director. Even so, the Court held she was a de facto director. She controlled the company’s finances, dealt with its advisers, creditors and financiers, and signed finance documents.
The Court found breaches of directors’ duties (ss 180–182 of the Corporations Act 2001 (Cth) (the Act)) and insolvent trading (s 588G). It also found that payments of more than $9 million to related parties lacked commercial justification. Importantly, the Court accepted that the company’s failure to keep proper books and records could support the statutory presumption of insolvency (s 588E(4)) from the time it was incorporated. Orders on the amounts payable are to be dealt with separately.
Kim v JM World: the director who did nothing. In Kim v JM World AU Pty Ltd (in liq) [2026] NSWCA 146 (28 July 2026), the NSW Court of Appeal (Ward P and Black J, Leeming JA dissenting on causation) upheld findings against a husband and wife who were co-directors. The husband entered into a substantial building contract and moved more than $980,000 of company money overseas. The wife took no part in the business at all. She argued she knew nothing and relied on her personal circumstances. The majority held that her complete lack of knowledge was itself the breach: every director owes a minimum standard of engagement that can’t be handed to someone else. The Court also declined to excuse her under ss 1317S or 1318 of the Act, noting the prejudice to creditors if she were relieved.
Why it matters
Director claims only work if there is someone worth suing. These decisions widen the field in two directions:
Look past the register. A de facto director (and a shadow director) is a “director” under s 9 of the Act. That means they can be liable for insolvent trading and breaches of duty. In phoenix cases the controlling mind is often the person holding the assets.
Passive directors are not safe. A spouse or family member who “just signed the forms” can be liable for losses their inactivity allowed. They are often the person who owns the family home or other assets.
Poor records can help the liquidator. Where the books are inadequate, the s 588E(4) presumption can lighten the burden of proving insolvency, which is often the most expensive part of an insolvent trading case.
What it means for liquidators, lawyers and creditors
Build the evidence of control early: emails, bank authorities, dealings with accountants and financiers, guarantees, and who instructed lawyers. Public examinations are well suited to this.
Identify every director, formal or informal, and look at each one’s assets before deciding who to sue.
Don’t treat the s 588E(4) presumption as a free kick. It can be rebutted, and the insolvency analysis still needs to be done properly. In Gemwood Projects Pty Ltd (in liq) [2025] VSC 819, a flawed insolvency analysis led the Supreme Court of Victoria to remove the liquidator and make serious costs and remuneration orders against him. That decision is the subject of an application for leave to appeal.
For creditors, these cases are a reminder that a liquidator with funding can reach further than the name on the company search.
Summary
The courts are looking at substance over form in both directions. People who run a company without being appointed will be treated as directors. People who are appointed but walk away from the role will still be held to a director’s standard. For liquidators, that means more potential defendants, and often ones with assets. The cases still need to be built on solid evidence of control and a careful solvency analysis. Done properly, these claims can turn a phoenixed shell into a real return for creditors. Back to news
Directors who weren’t directors, and directors who did nothing – “Quick Take”
Ironbark Litigation Funding’s “Quick Takes” are for time poor people – we do the work distilling the subject matter so you don’t have to.People often ask me who a liquidator can realistically sue when a company has been run into the ground. The person on the ASIC register is often a “man of straw”. The person who actually ran the business often isn’t on the register at all. Two recent decisions make it easier for liquidators to reach both.
What happened
Eastside Formwork: the unappointed director. In August, Justice Needham of the Federal Court of Australia (FCA) delivered judgment in the liquidator’s claims arising from the collapse of Eastside Formwork Pty Ltd ([2026] FCA 1140). The Court found the business was part of a phoenixing scheme, in which successive entities were used to leave creditors (most of all the Australian Taxation Office) unpaid. Mrs Connie Stojic was never formally appointed, and someone else was the registered director. Even so, the Court held she was a de facto director. She controlled the company’s finances, dealt with its advisers, creditors and financiers, and signed finance documents.
The Court found breaches of directors’ duties (ss 180–182 of the Corporations Act 2001 (Cth) (the Act)) and insolvent trading (s 588G). It also found that payments of more than $9 million to related parties lacked commercial justification. Importantly, the Court accepted that the company’s failure to keep proper books and records could support the statutory presumption of insolvency (s 588E(4)) from the time it was incorporated. Orders on the amounts payable are to be dealt with separately.
Kim v JM World: the director who did nothing. In Kim v JM World AU Pty Ltd (in liq) [2026] NSWCA 146 (28 July 2026), the NSW Court of Appeal (Ward P and Black J, Leeming JA dissenting on causation) upheld findings against a husband and wife who were co-directors. The husband entered into a substantial building contract and moved more than $980,000 of company money overseas. The wife took no part in the business at all. She argued she knew nothing and relied on her personal circumstances. The majority held that her complete lack of knowledge was itself the breach: every director owes a minimum standard of engagement that can’t be handed to someone else. The Court also declined to excuse her under ss 1317S or 1318 of the Act, noting the prejudice to creditors if she were relieved.
Why it matters
Director claims only work if there is someone worth suing. These decisions widen the field in two directions:
Look past the register. A de facto director (and a shadow director) is a “director” under s 9 of the Act. That means they can be liable for insolvent trading and breaches of duty. In phoenix cases the controlling mind is often the person holding the assets.
Passive directors are not safe. A spouse or family member who “just signed the forms” can be liable for losses their inactivity allowed. They are often the person who owns the family home or other assets.
Poor records can help the liquidator. Where the books are inadequate, the s 588E(4) presumption can lighten the burden of proving insolvency, which is often the most expensive part of an insolvent trading case.
What it means for liquidators, lawyers and creditors
Build the evidence of control early: emails, bank authorities, dealings with accountants and financiers, guarantees, and who instructed lawyers. Public examinations are well suited to this.
Identify every director, formal or informal, and look at each one’s assets before deciding who to sue.
Don’t treat the s 588E(4) presumption as a free kick. It can be rebutted, and the insolvency analysis still needs to be done properly. In Gemwood Projects Pty Ltd (in liq) [2025] VSC 819, a flawed insolvency analysis led the Supreme Court of Victoria to remove the liquidator and make serious costs and remuneration orders against him. That decision is the subject of an application for leave to appeal.
For creditors, these cases are a reminder that a liquidator with funding can reach further than the name on the company search.
Summary
The courts are looking at substance over form in both directions. People who run a company without being appointed will be treated as directors. People who are appointed but walk away from the role will still be held to a director’s standard. For liquidators, that means more potential defendants, and often ones with assets. The cases still need to be built on solid evidence of control and a careful solvency analysis. Done properly, these claims can turn a phoenixed shell into a real return for creditors. Back to news