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.