Our last newsletter (December 2007) discussed an amendment to the DOCA legislative provisions that mandated the inclusion of section 556, section 560 and section 561 provisions for priority employee entitlements into DOCAs unless the affected employees agreed otherwise. We discuss some further changes to section 560 below.
One significant part of the changes is that the section 561 priority for certain employee entitlements over assets secured by the ‘floating’ part of a registered security is now included in DOCAs. Previously this priority over secured assets only applied to liquidations.
Superannuation Guarantee Charge (SGC)
Until 31 December 2007 any SGC component that related to claims for excluded employees (directors and their relatives) was not limited under section 556 to the statutory $2,000 amount. That limitation applied to ‘wages and superannuation contributions’ but not to the SGC. The reasoning was that the SGC was created by theSuperannuation Guarantee (Administration) Act (SGAA) and that section 52 of the Act gave the SGC the same priority as claims under section 556(1)(e) of the Corporations Act, but did not join the claims together.
That position has changed with section 52 of the SGAA being repealed and the SGC being included in section 556(1)(e) of the Corporations Act, thereby including it with the other claims and making it subject to the excluded employee limitation. It also provides that any claim for outstanding superannuation contributions that are also included in the SGC cannot be claimed any other party by giving the liquidator or a deed administrator the right to reject any such proofs of debt.
The position with the SGC is now more aligned to the position under the Bankruptcy Act, expect that all employee claims under the Bankruptcy Act fall under a statutory limitation.
Section 560 provides a right of subrogated priority to a party that has advanced money to a company that was used to pay certain employee entitlements. The person providing the money would receive the same priority that the employee would have enjoyed under section 556 if the payment to the employee had not been made.
There had been some argument about whether advances made after the appointment had that priority – a major factor for GEERS payments. There was also some argument about the rights of the subrogated priority creditor across various administrations – whether the right to the priority carried across to a subsequent liquidation.
To remove any doubt, section 560 has been reworded to:
- ensure that payment made before or after the commencement of the liquidation fall under this section; and
- ensure that the person who advanced the money is recognised as a creditor under all of the relevant types of insolvency administration