The statutory order of priority as it relates to a
superannuation guarantee charge liability was considered in the New
South Wales Supreme Court proceeding In the matter of
Independent Contractor Services (Aust) Pty Limited ACN 119 186 971
(in liquidation) (No 2)  NSWSC 106.
In an earlier related proceeding, Justice Brereton made a
determination that certain moneys standing to the credit of the
company in question (Independent Contractor Services (Aust) Pty
Limited ACN 119 186 971 (in liquidation) (ICS))
were not to be treated as assets of the company, but were to be
distributed in accordance with the Independent Contractor Services
Trust (Trust) of which ICS was trustee.
The Australian Taxation Office (ATO) lodged a
proof of debt in the liquidation of ICS which included an amount
for a superannuation guarantee charge liability. Section
556(1)(e)(i) of the Corporations Act affords priority to
superannuation guarantee charge payable by a company in respect of
services rendered to the company by employees.
The liquidator applied for various directions as to the
appropriate distribution of the trust assets, including whether the
liability to the ATO for superannuation guarantee charge was
entitled to priority pursuant to section 556 (1)(c).
Justice Brereton concluded that the liabilities of the company
– including the superannuation guarantee charge – were
incurred in the course of acting as a trustee and the creditors
were entitled to be indemnified from the trust's assets.
While acknowledging some doubt in the law, Justice Brereton also
found that the statutory priority referred to in section 556 did
not apply in respect to trust assets and that creditors share pari
passu in the trust assets (after deducting the liquidator's
remuneration and expenses).
His Honour further held that even if the section 556 priorities
did apply, in this case the superannuation guarantee charge
liability would not be entitled to the priority that it otherwise
would be under s 556(1)(e)(i) because the services rendered to the
company were rendered by contractors, not employees, and the
section is explicitly limited to employees.
This NSW Supreme Court decision found that the statutory order
of priority reflected in section 556 of the Corporations
Act does not apply in respect of trust assets. This conclusion
appears to go against what has been accepted law and practice. We
understand that there is another liquidator's application for
directions currently before the Victorian Supreme Court that covers
similar issues and a decision is pending.
Ultimately, we may need the decision of an appeal court or
legislation to clarify the position because of its impact on
priority creditors such as employees.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent NSW decision has implications for liquidators of trustee companies dealing with trust funds and priority debts.
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