Superannuation and the claims that may be made for outstanding superannuation in an insolvent estate have been discussed recently in light of the pending changes to legislation that will allow directors to become personally liable for outstanding superannuation amounts under the ‘DPN’ provisions (as they are commonly known).
In the past all outstanding superannuation had to be paid to employee’s funds by 28 July each year. If that did not happen, notice had to be given to the Australian Taxation Office under the Superannuation Guarantee Charges Act by 14 August. The provisions currently state that employers have to pay superannuation contributions for each employee by the quarterly cut-off dates, being 28 days after the end of each quarter.
If they do not or cannot make those payments, employers have to lodge a Superannuation Guarantee Charge Statement – Quarterly within that 28 day period.
The Australian Taxation Office website says that employers have to do this if they:
- “don’t pay enough super contributions (at least 9% of ordinary time earnings) for your employee – this is called a super guarantee shortfall
- don’t pay super contributions by the quarterly cut-off date for payment
- don’t pay super to your employee’s chosen super fund – this is called a choice liability.
According to the website:
“you’ll have to:
- complete a Superannuation guarantee charge statement – quarterly
- work out the amount of super guarantee charge to pay
- pay the super guarantee charge to us by the due date for the relevant quarter.”
One would think that that if you had the money to pay the superannuation guarantee charge (which includes the amount of the shortfall) to the Australian Taxation Office by the end of the quarter, you had enough money to pay the superannuation to the fund by that date and there would be no shortfall.
At times the employer is insolvent and enters into a form of insolvency administration before the required amount is paid to the Australian Taxation Office under the superannuation guarantee charge leaving a debt that may be proved in the estate.
If there is a superannuation guarantee shortfall and the Australian Taxation Office makes an assessment of the amount from the statements forwarded to the Australian Taxation Office or by default or otherwise, they may lodge a proof of debt with the liquidator or trustee for the Superannuation Guarantee Shortfall.
Superannuation is an amount that the employer must deduct and pay to the superannuation fund on behalf of the employee. This statutory amount is not technically a debt to the employee though other amounts deducted to be paid to the fund may be. It not provable by them in an insolvent estate if it falls under a claim made by the Australian Taxation Office under the Superannuation Guarantee provisions.
It is also not technically a debt due to the trustee of the superannuation fund even though it should have been paid to them.
The Corporations Act contains section 553AB that in effect provides the priority to the Australian Taxation Office’s proof of debt for their superannuation guarantee charge. The Australian Taxation Office’s claim has priority over one lodged by the employee or their fund manager.
CORPORATIONS ACT- SECTION 553AB
Superannuation contribution debts not admissible to proof
Whole of superannuation contribution debt
(1) In a winding up, the liquidator must determine that the whole of a debt by way of a superannuation contribution is not admissible to proof against the company if:
(a) a debt by way of superannuation guarantee charge:
(i) has been paid; or
(ii) is, or is to be, admissible to proof against the company; and
(b) the liquidator is satisfied that the superannuation guarantee charge is attributable to the whole of the first-mentioned debt.
According to the Corporations Act, only the Australian Taxation Office can lodge a proof of debt for unpaid superannuation if it falls under the Superannuation Guarantee Charge, whether a claim has currently be made or not. It appears that as long as the Australian Taxation Office has the right to make a claim for the Superannuation Guarantee Shortfall, no one else can make that claim. The Bankruptcy Act does not clarify this position to the same degree.
As to priority, under the Corporations Act any superannuation not remitted (whether amounts claimable by the employee or fund or under the superannuation guarantee charge) has a priority under section 556(1)(e), superannuation being specifically mentioned as a priority entitlement. It must be paid alongside wages and before other entitlements.
556(1)(e) subject to subsection (1A) — next, wages and superannuation contributions and superannuation guarantee charge payable by the company in respect of services rendered to the company by employees before the relevant date;
The Bankruptcy Act is different and gives a priority limited by a dollar amount for entitlements due to employees of the bankrupt. Section 109 includes (at subsection 1C) any outstanding superannuation guarantee charge (which includes interest and penalties) as part of that priority amount.
Therefore any amount of superannuation claimed and proved by the Australian Taxation Office is subject to the upper priority limit imposed by the Bankruptcy Act – currently $4,000. The balance of superannuation guarantee charge would then be a non-priority debt along with the balance of the wages amount.
BANKRUPTCY ACT 1966 – SECTION 109
(1C) The reference in paragraph (1)(e) to amounts due to or in respect of any employee of the bankrupt also includes a reference to amounts due as superannuation guarantee charge (within the meaning of the Superannuation Guarantee (Administration) Act 1992), or general interest charge in respect of nonpayment of the superannuation guarantee charge.
Claims by employees for excess contributions or contract contributions would have section 109 priority, as they are due in respect of an employee and for services rendered, but also subject to that limited priority.