TGIF 11 September 2026 - Federal Court exposes phoenixing scheme and holds de facto director to account

This week’s TGIF considers the decision of Justice Needham in Banerjee (Liquidator), in the matter of Eastside Formwork Pty Ltd (in liq) v Stojic (Trial Judgment) [2026] FCA 1140, in which the Federal Court found the first defendant to be a de facto director and officer of a company at the centre of a phoenixing scheme. Justice Needham held the company to be presumed insolvent from incorporation by reason of its failure to keep books and records under section 286 of the Corporations Act 2001 (Cth) (the Act) and actually insolvent from 20 June 2017. 

The Court held Mrs Stojic was a de facto director and was liable for insolvent trading and breaches of directors' duties. The Court also held that Buildquip was also liable for its ‘knowing assistance’ in the breach of directors’ duties in making the transfers.

Key takeaways

• Establishing a person is a de facto director is a complex factual exercise. The Court found Mrs Stojic to be a de facto director based on her control of the company's administration email, she managed the Company’s finances, she instructed the company’s solicitors and accountants, her correspondence with the company’s creditors and customers where it was described as her company, her negotiation of the sale of the company’s business, she signed finance documents on behalf of the company, and the company’s employees looked to her for guidance and complied with her directions. Persons who exercise real influence over a company's affairs, even where they characterise their involvement as merely ‘administrative’, risk being found to be de facto directors and held personally liable for the company's debts and breaches of directors’ duties.
   
• Phoenixing schemes will be scrutinised holistically. Justice Needham found the evidence “overwhelmingly” supported the existence of a phoenixing scheme, notwithstanding that not every pleaded element was made out precisely as alleged. The Court was willing to look at the broader pattern of conduct, including the serial cycling of a business through successive entities, the installation of nominee or “stooge” directors, the stripping of funds through uncommercial transactions, and the incorporation of a successor company.
   
• Failure to keep books and records carries serious consequences. The Company's failure to maintain proper financial records grounded a presumption of insolvency under section 588E(4) of the Act from the date of its incorporation, and the Court held that presumed insolvency was sufficient to satisfy the insolvent trading provision in section 588G. This reinforces the critical importance of maintaining contemporaneous, accurate books and records, both as a statutory obligation and as a practical shield against insolvency claims. 

Background

The proceeding was brought by the liquidator of Eastside Formwork Pty Ltd (in liquidation) (the Company), against Mrs Connie Stojic, her husband Mr Dane Stojic, Mr Mohammed Zaidan (the third defendant, the Company's registered director), Eastside Holdings Pty Ltd, and Buildquip Pty Ltd. The Company provided formwork contracting services to builders on large-scale residential and commercial developments. It was placed into liquidation on 13 November 2020, with debts of at least $10,338,542 owed to creditors, including $6,064,556.06 to the ATO.

The active defendants were Mrs Stojic and Buildquip, a company of which Mrs Stojic was the sole director and shareholder. Mr Stojic was an agreed de facto and/or shadow director of the Company but was an undischarged bankrupt and took no part in the proceedings. Mr Zaidan was described by senior counsel for the plaintiff, a characterisation accepted by the Court, as a “‘stooge” or “dummy director” who was a director in name only and never took part in the management of the Company. 

The liquidator alleged that Mrs Stojic and her husband had been engaged in a scheme involving the phoenixing of the formwork business through a number of entities, for the purpose of leaving behind substantial debts owed to creditors, including the ATO.

The Court found the evidence overwhelmingly supported the existence of a scheme. The key elements of the phoenix scheme, as found by Justice Needham, were as follows:

• Serial corporate succession. The formwork business was conducted by Rediform NSW from about 2008 to 2014, before that company was wound up by its creditors. Rediform Contracting then took over the business from about 2014 to 2016, until it too was voluntarily wound up. The Company then took over the business from Rediform Contracting prior to that company being placed into liquidation.
   
• Use of nominee directors. Mr Zaidan was installed as a nominee (dummy) director so Mr and Mrs Stojic could avoid being personally liable for the Company's debts. Mr Zaidan gave uncontested evidence that he was a director, secretary and shareholder “in name only” and “never taken part in the management of the affairs of [the Company]”.
   
• Siphoning of funds. Cash received by the Company from operating the business, which was not used to pay creditors, was transferred to Holdings, Buildquip and Mr Stojic for more than the true and fair market value of any materials and services provided or for no, or no real, consideration.
   
• Failure to lodge tax returns. The Company did not lodge, or delayed lodging, income tax returns, activity statements and other reports with the ATO.
   
• Planned successor company. Prior to the Company being placed into liquidation, Eastside Formwork Group Pty Ltd (EFG) was incorporated to take over the business of the Company once it was recognised as being in “serious financial trouble”. An email from Mr Stojic in evidence directed that contracts with the Company would be novated to EFG and that the recipient should not “pay further monies to AIF and/or the old [Company] accounts”. The Court noted this process was thwarted only by the Company being placed into receivership by its secured creditor, AIF.

Justice Needham held the matters raised by Mrs Stojic against the existence of a scheme, including that she had personally lost money as guarantor, went “not to the lack of existence of a scheme, but to a lack of its success”.

A critical threshold issue was whether Mrs Stojic was a director or officer of the Company. The Court found she was a de facto director and/or officer of the Company from the date of its incorporation. Key evidence supporting this finding included that Mrs Stojic:

• was the primary user of the Company's administration email and, through its use, demonstrated she was the person with “the ultimate responsibility for management decisions”;
   
• negotiated and instructed solicitors in relation to the proposed sale of the business to a Mr Bryers, acting “essentially as a principal”;
   
• instructed the Company's accountants, liaised with creditors regarding payment of invoices, and managed the Company's taxation affairs.
   
• signed a finance acceptance “for and on behalf of” the Company; and
   
• was involved in doctoring remittance advices to manipulate the Company's factoring facility with AIF. 

The Court drew adverse inferences under Jones v Dunkel from Mrs Stojic's failure to call her husband as a witness and from the defendants' failure to produce books and records.

Justice Needham made the following findings:

• the Company was presumed insolvent pursuant to section 588E(4) of the Act from the date of incorporation. The Court also found the Company was actually insolvent from 20 June 2017;
   
• Mrs Stojic had at least a suspicion of insolvency from shortly after the Company started trading, and a reasonable person in her position as director would have had such a suspicion;
   
• significant payments made by the Company to Buildquip, Holdings, and Mr Stojic (the Transfers) were uncommercial transactions – the payments for hire formwork were below market and the invoices and hire purchase agreement were a sham, there was no agreement or basis of calculation for other payments made as ‘reimbursements’;
   
• a reasonable person in the Company's circumstances would not have entered into the Transfers, particularly given that the ATO had been issuing notices since 2017;
   
• Mrs Stojic was liable under both limbs of Barnes v Addy. Under the first limb, she received the benefit of misapplied funds as the sole director and shareholder of Buildquip, and under the second limb, she and Buildquip gave “knowing assistance” to the making of the transfers with actual knowledge of the breach of fiduciary duty;
   
• Mrs Stojic breached her duty to prevent insolvent trading under section 588G(2) of the Act from the date of incorporation and contravened each of sections 180(1) (care and diligence), 181(1) (good faith) and 182(1) (improper use of position) in permitting the Transfers the Court found were uncommercial transactions made for no or inadequate consideration, and due to the Scheme; and
   
• Mrs Stojic and Buildquip were each found liable as accessories to the breaches of statutory and fiduciary duties owed by Mr Stojic (an agreed de facto/shadow director) and Mr Zaidan (a director “in name only”), on the basis Mrs Stojic had actual knowledge of the essential elements of their contraventions, which knowledge was imputed to Buildquip as its directing mind and will.

Comment

The decision provides a significant illustration of a court's willingness to look beyond the ASIC register and find a person was a de facto director where the evidence supports it, particularly in the context of a phoenixing scheme. The judgment demonstrates the importance of:

• The breadth of the de facto director concept. The Federal Court's finding in this case was grounded in a holistic assessment of Mrs Stojic's involvement in management decisions, instructions to professionals, negotiations with third parties, control of the Company's administration email and direction of employees.
   
• Presumed insolvency under section 588E(4) of the Act. The failure to maintain books and records was sufficient to ground a presumption of insolvency from incorporation, and the Court held that presumed insolvency was sufficient to satisfy the requirements of section 588G of the Act.
   
• The evidential burden on directors. Mrs Stojic's failure to call available witnesses (particularly Mr Stojic) and to produce documents supported adverse inferences under Jones v Dunkel, and her failure to raise any defences under section 588H was noted by the Court.
   
• The Court's approach to phoenixing. The serial use of corporate vehicles, nominee directors, and uncommercial transactions to strip value from the Company while leaving behind substantial creditor debts was found to constitute a scheme, and the Court was prepared to treat the matters raised by the defendants against the scheme as going to its (lack of) success, rather than its existence.
   
• Voidable transactions and sham documentation. Invoices created after the event to provide a veneer of commerciality, and a hire agreement created for one purpose and relied upon for another, were rejected by the Court.