New South Wales Supreme Court CITATION : Nicols v Gerringong Bakery Pty Ltd [2000] NSWSC 1221 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4854 of 2000 HEARING DATE(S) : 13 December 2000 JUDGMENT DATE : 13 December 2000 PARTIES : Steve Nicols (Plaintiff) Gerringong Bakery Pty Limited (In Liquidation) (Defendant) JUDGMENT OF : Windeyer J at 1 Mr M R Aldridge SC (Plaintiff) COUNSEL : No Appearance (Defendant) Mr F Gleeson (Deputy Commission for Taxation) SOLICITORS : Paul Bard (Plaintiff) No Appearance (Defendant) CATCHWORDS : CORPORATIONS - winding up - application by liquidator for directions - payment of one class of creditors - whether subject to order of priority payments - proposal would reverse that order LEGISLATION CITED : Corporations Law s447(1), s555. s556, s556(1)(e) s556(1)(g)(iv), s477(1)(b) Superannuation Guarantee Administration Act 1992 In Re Oygepould International BU (1994) 14 ACSR 245 CASES CITED : Re Barrington and Associates (1989) VR 940 Re Walker Hare Pty Ltd (1968) VR 447 DECISION : See paragraphs 10-12 1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J WEDNESDAY 13 DECEMBER 2000 4854/00 NICOLS v GERRINGONG BAKERY PTY LIMITED JUDGMENT 1 HIS HONOUR: This is a matter in which Mr Nicols the liquidator of Gerringong Bakery Pty Ltd seeks directions of the Court which would empower him to pay employees of the company their entitlements for long service leave and annual leave prior to completion of the winding up, notwithstanding that such payments may result in entitlements for long service leave and annual leave being given priority over entitlements to employees' superannuation contributions. 2 Those latter entitlements are the subject of a claim by the Federal Deputy Commissioner of Taxation because they have not been paid as required by the Superannuation Guarantee Administration Act 1992. Section 447 1 (b) of the Corporations Law provides that, a liquidator may (subject to the provisions of section 556) pay any class of creditors in full. 3 Section 555 provides that, except as otherwise provided by the law all debts and claims proved in a winding up rank equally and where the property of the company is insufficient to meet them in full, they shall be paid proportionately. 4 Section 556 is the section relating to priority payments. Under that section a ranking is given to claims. Section 556 1(e) gives claims for wages and superannuation contributions payable by the company for employees before the relevant date, priority over claims provided for by section 556 1(g)(iv), namely the amounts due in respect of leave of absence. Leave of absence includes claims for long service leave. 5 On its ordinary meaning it seems perfectly clear to me that when section 477 1(b) is made subject to the provisions of section 556, then the powers of the liquidator to pay any class of creditors in full to the detriment of other creditors must be limited to classes of creditors who are not covered by the priority provisions in section 556. If it did not mean that it would be meaningless. 6 Nevertheless, it is clear from cases that some expenses may be incurred in realising the property of the company or in carrying on the business of the company. For instance, there would be increased liabilities for long service leave from the date of the winding up until the date of sale of some of the businesses of the company which would be covered by that section. 7 As I understand it, that conforms with the decision of Justice McLelland In re Oygepould International BV (1994) 14 ACSR 245. In that case his Honour went on to say that the Court had power to authorise a liquidator to make a payment out of the assets of the company which he would not otherwise be bound or entitled to make. In that case what was ultimately authorised was a payment of foreign debts which were not provable in the liquidation. To some extent that entitlement appears to have been based on the power of the court to control the functions of an officer of the court. This is not the case in question here because Mr Nicols is not a court appointed liquidator but is a voluntarily appointed liquidator. 8 It has been put that it was determined in the cases of Re Walker Hare Pty Ltd (1968) VR 447 and Re Barrington and Associates (1989) VR 940 that payments were authorised which preferred one class of unsecured creditors over another. As I understand those judgments, the facts in those cases did not have the result of making a direction or determination which affected the rights of creditors who would be entitled to priority payments under the Act. It seems to me that all that does is to confirm my view that section 477 1(b) must be read in accordance with its ordinary meaning and thus subject to section 556 and I so find. 9 I should add that in my view the Court would not necessarily on the evidence before it make an order empowering the liquidator to act as he suggests because the evidence does not show the detrimental effect such an order might have, if made, on former employees entitled to the superannuation payments but not entitled to long service leave payments in any event. 10 I order that the summons be dismissed. 11 I order that the costs of the summons to be the liquidator's costs in the liquidation. 12 I order that the costs of the Deputy Commissioner of Taxation to be costs in the liquidation. ********** Last Modified: 12/20/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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