The Liberal candidate for next Saturday's Manly byelection, James Griffin, was a director of a company a liquidator found may have traded while insolvent before it was wound up owing the Australian Tax Office $160,000.
Mr Griffin, who hopes to replace Premier Mike Baird as Manly MP on April 8, was a director and shareholder in "social media intelligence" startup, SR7, which was bought in February 2014 by consultancy KPMG.
The company was co-founded by former Liberal party advertising guru Greg Daniel, who was also a director and shareholder.
On March 3, 2014, as part of the sale to KPMG, SR7 was re-registered as ACN 141 620 724 and placed into voluntary liquidation.
According to the liquidator's March 2015 report to creditors, the company had net trading losses totalling more than $113,000 for financial years 2010-11 to 2012-13.
The report also highlights "a shortfall of current assets to current liabilities" in each year during that period.
The liquidator concluded that "there is evidence to suggest that the directors may have traded the company whilst it was insolvent".
The report also reveals the company failed to lodge income tax returns for the three financial years to 2013-14. Nor did it lodge monthly GST activity statements from October 2013 to March 2014 or employee payment summaries in 2011-12 and 2013-14 financial years.
The debt to the tax office is put at $160,883, but the liquidator's report says that the failure to lodge documents meant "the full extent of the company's liability to the ATO has not yet been determined and may be higher".
Mr Griffin, who was named the NSW Business Chamber's Young Business Person of the Year for 2011, told Fairfax Media the debt to the tax office debt was repaid in full last year.
He said the first he learnt of the debt "was when the [liquidator's] report was finalised".
On the failure to lodge documents with the corporate regulator, Mr Griffin said that when the liquidator was appointed "I understood everything was up to date".
"We were a startup; we kicked off sitting on milk crates and grew it into a small business," he said.
"There were hundreds of things to do every day. We did have, from time to time, a book-keeper to help us with that type of work".
The liquidator's view that there was evidence the company may have been trading while insolvent "was never addressed with any of us", Mr Griffin said. "Our view was that was not the case at all."
"I disagree that it's something that people should be concerned about.
"I'm really proud of the hard work that we put into the startup and the energy that we put into building a small business."
Mr Griffin, who is favoured to win the safe Liberal seat held on a 28.4 per cent margin, has also come under fire from political opponents over his involvement in signing off on a bungled development plan for Manly Oval as the local council's deputy mayor.