Controversial Auburn deputy mayor Salim Mehajer is facing yet another legal headache, with the liquidator of one of his companies taking court action against him and his business partner to claw back almost $700,000.

Cr Mehajer and his business partner Minh Hua, the joint owners of failed company SM Project Developments, are being sued in the NSW Supreme Court for allegedly breaching their directors' duties.

The liquidator, Anthony Elkerton of Dean-Willcocks Advisory, says in documents filed with the corporate regulator that he believes the cause of the failure of the company is "poor strategic management of [the] business".

The company was forced into liquidation in January 2013 over unpaid taxes. Corporate documents show that a total of $889,709 is owed to the Australian Taxation Office and three smaller creditors.