Bank of New South Wales v Federal Commissioner of Taxation

(i) in payment in full of the debts due to employees pursuant to s. 196 of the Companies Act;

(ii) in payment of the balance of the debt due to the bank; and

(iii) in payment to the Deputy Commissioner of Taxation on account of the debt for income tax.

The detailed facts and curial history of this case are to be found in the reasons for judgment prepared by my brother Gibbs, which I have had the advantage of reading.

The case is simple in structure: under the terms of a debenture security given by a company to a bank, partly as a fixed charge and partly as a floating charge, a receiver and manager was duly appointed at a time when a creditor's petition to wind up the company had been presented. The charged assets realized enough to pay the company's indebtedness to its employees and the company's indebtedness to the bank, leaving a surplus of some $6,989.81.

Because of these financial facts, the case does not raise any question as to the proper construction and application of s. 196 (3).

The company was placed in liquidation subsequent to the appointment of the receiver. The liquidator's realization of the remaining assets of the company is insufficient to pay the amount due to the Crown by the company for sales and income tax. Indeed, even after being argumented by the surplus in the hands of the receiver, the total amount of tax due will not have been met.

Section 196 of the Companies Act, 1961 N.S.W., as amended, is applicable to the circumstances of the receiver so that he is bound to pay the company's indebtedness to its employees out of the proceeds of the realization of the assets subject to the floating charge in priority to the payment thereafter of the indebtedness to the bank. The section does no more, so far as concerns the present facts, than to require the receiver to pay to the employees, and in priority to the secured creditor, an amount out of what are, apart from the section, moneys of the secured creditor. The section makes no impact upon any question of Crown priority for payment of Crown debts over debts of equal degree. However, as already indicated, there was sufficient in the hands of the receiver to more than meet both claims. There was an amount realized upon the sale of the fixed assets which was payable to the bank in any case.

The receiver in distributing the proceeds of the bank's security is not in any relevant sense administering the assets of the company. He is realizing the bank's security and, subject to s. 196, is bound by its terms to pay its proceeds to the bank in discharge of its debt secured by the debenture so far as they will extend. If they are sufficient to satisfy that debt, any surplus, subject to any supervening liquidation, is payable to the company. My brother Gibbs makes reference to the relevant provisions of the Income Tax Assessment Act, 1936 Cth, as amended. I agree with his analysis of them and his conclusion that none of these provisions places any obligation on the receiver to pay any sum for income or sales tax. At no stage has he in his hands any sum "available for payment of the tax", until he has satisfied the workers and the bank.

There being no administration of the assets of the company by the receiver and no statutory obligation on the receiver in relation to the payment of tax, there was no such competition between the Crown and the employees of the company or the bank which called for the consideration of any priority of the tax debts due to the Crown. In any case, so far as the receiver is concerned, the debt due to the Crown for tax is not relevantly in competition with either the indebtedness to the employees or that to the bank.

It will be seen from what I have written that I have not found in the case the complexities which troubled the learned primary judge and led him to make the order which he made. It will also appear that I could not agree with that order under which, in effect, the debt to the bank was to be discharged by payment of the company's indebtedness to its employees.

During argument, the Court indicated that it would not hear argument as to the correctness of its decision in The Commonwealth v. Cigamatic Pty. Ltd. (In liq.) [18] . Properly understood, this case does not call for the application of that decision. But I should add that I would not be a party to reopening that decision. In the first place, in my opinion, the decision was right in principle: and, secondly, in any case, it was a decision of seven Justices and has now stood for some time. It should be left to the Parliament to alter what the case decides.

In my opinion, the appeal should be allowed, the cross-appeal dismissed and the receiver directed, first, to pay the amount due by the company to its employees and, secondly, to pay the balance of the amount due to the bank and to pay the remaining balance of his realization to the liquidator who will no doubt pay that sum, along with the amount of his realization, to the Deputy Commissioner for Taxation.

On 6th March 1975 Custom Card (N.S.W.) Pty. Ltd. ("the company") executed a deed of mortgage in favour of the Bank of New South Wales ("the bank") by which it charged all its undertaking and assets present and future in the State of New South Wales with the payment to the bank of, inter alia, all moneys then or thereafter to become owing or payable to the bank by the company. The charge was to operate as a fixed charge as regards certain specified property and as a floating charge only as regards the remaining assets (cl. 3 (i)). The moneys secured were payable not only on demand but also at the option of the bank in certain events, one of which was if a petition was lodged for the winding up of the company (cl. 3 (ii) (a)). By cl. 3 (iii) the bank was entitled, at any time after the money secured became payable, to appoint a receiver of the mortgaged property. The receiver was to be the agent of the company, and was to have power, inter alia, to take possession of, collect and get in the whole or any part of the mortgaged property, to carry on the business of the company, and to sell all or any of the mortgaged property (cl. 3 (iii)). On 23rd April 1976 a creditor of the company filed a petition to wind it up and on 9th June 1976 the bank appointed Mr. Hunter and Mr. James to be receivers of the mortgaged property under the deed of mortgage. The company was wound up by order of the Supreme Court of New South Wales on 18th August 1976 and Mr. Hamilton was appointed liquidator.

The receivers have realized the New South Wales assets of the company, and as a result have under their control the sum of $35,378.97, of which, it is now agreed, $5,505 represents the assets which were subject to the fixed charge. The liquidator has realized the other assets of the company and has under his control the sum of $31,469. The creditors of the company, who are claimants against one or other of these funds, are the following: (1) The bank, which is owed the amount of $13,478.12, all of which was secured by the deed of mortgage. (2) Former employees of the company, who are owed sums totalling $14,911.04 for wages, holiday pay and long service leave. These sums were due at the date when the receivers were appointed and were still owing at the date of the winding up order, and it is not in contest that in a winding up (if questions of Crown priority be disregarded) they were payable in priority to all other unsecured debts pursuant to s. 292 (1) (b) and (d) of the Companies Act, 1961 N.S.W., as amended. (3) The Deputy Commissioner of Taxation, who is owed $75,576.72 in respect of sales tax (including additional tax for late payment and penalties) and $10,300.15 in respect of income tax.

The receivers and the liquidator made applications to the Supreme Court of New South Wales for directions as to how the funds respectively available to them should be applied, and on those applications Needham J. made an order giving directions [1] .

Needham J. held that s. 196 of the Companies Act was applicable to the present case. That conclusion was not disputed before us and in any case there is no reason to doubt its correctness. Section 196 in its present form provides as follows:

(1) Where a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge or possession is taken by or on behalf of debenture holders of any property comprised in or subject to a floating charge, then if the company is not at the time in the course of being wound up, any debt or amount which in a winding up is payable in priority to other unsecured debts pursuant to paragraph (b) or paragraph (d) of subsection (1), subsection (3) or subsection (5) of section two hundred and ninety-two shall be paid out of any assets coming to the hands of the receiver or other person taking possession in priority to any claim for principal or interest in respect of the debentures and shall be paid in the same order of priority as is prescribed by that section in respect of those debts and amounts.

(a) "floating charge" includes a floating charge within the meaning of section two hundred and ninety-two; and

(b) the periods of time mentioned in section two hundred and ninety-two shall be reckoned from the date of the appointment of the receiver or of possession being taken, as the case may be.

(3) Any payments made under this section shall be recouped as far as may be out of the assets of the company available for payment of general creditors.

The expression "debenture" is defined in s. 5 (1) of the Companies Act to include "debenture stock, bonds, notes and any other securities of a corporation whether constituting a charge on the assets of the corporation or not". A "floating charge" within the meaning of s. 292 of the Companies Act includes "a charge conferring a floating security at the time of its creation which has become a fixed or specific charge": s. 292 (11) (a).

Needham J. further held that the Deputy Commissioner of Taxation was entitled to priority over all other unsecured creditors in respect of the amounts due for sales tax and income tax. Income tax, when it becomes due and payable, is a debt due to the Queen on behalf of the Commonwealth and payable to the Commissioner (s. 208 of the Income Tax Assessment Act 1936 Cth, as amended) and the same is true of sales tax (s. 30 of the Sales Tax Assessment Act (No. 1) 1930 Cth, as amended). The priority which the learned primary judge accorded to these taxes was not based on any particular statutory provision, but on the common law prerogative of the Crown to priority when in an administration of assets debts of equal degree due to the Crown and to subjects come into competition.

The learned primary judge then faced what counsel before him described as a conundrum. The argument was that the bank, being a secured creditor, had priority over the Deputy Commissioner of Taxation, whose claims were not of equal degree; the Deputy Commissioner of Taxation had priority over other unsecured creditors, including the employees; but the employees had priority (because of s. 196 of the Companies Act) over the bank.

So far as concerned the proceeds of the sale of the assets subject to the fixed charge, this difficulty did not arise, for s. 196 did not apply to them and the bank's entitlement was not affected. With regard to the proceeds of the assets subject to the floating charge, to which s. 196 did apply, the learned primary judge found a solution to the problem by commencing with the proposition that the Crown in right of the Commonwealth was not bound by s. 196 of the Companies Act. His reasoning then proceeded as follows. The effect of s. 196 was to give priority to the employees over the bank, and the employees were entitled only to so much of the assets as would have been necessary to meet the balance of the bank's debt. If, after payment of the employees, the bank was still entitled to rank for the balance of its claim as a secured creditor, the State Parliament would have indirectly destroyed the priority of the Crown in right of the Commonwealth over the claims of the employees, whereas if, on the other hand, the Crown was subrogated to the rights of the employees, the provisions of s. 196 (1) would have been entirely nullified. Both these consequences should be avoided by holding that once the security of the bank had been discharged by payment to it and the employees, s. 196 (3) gave the bank the right to be treated as a general creditor and that, as such, it had no priority over the Crown. He accordingly made an order whose effect was that the receivers should deal with the sum under their control as follows: (1) the bank should be paid that part of that sum which represents the net proceeds of the sale of the assets subject to the fixed charge (i.e., $5,505); (2) the employees should be paid out of the proceeds of the assets subject to the floating charge (which had of course crystallized) but only to the extent to which the bank would, apart from s. 196, have had a claim against those assets (i.e., $7,973.12); (3) the remainder ($21,900.85) should be paid to the Deputy Commissioner on account of income tax and sales tax. He made a further order directing the liquidator to apply the funds available to him, first, by making certain payments to employees under the proviso to s. 221 (1) (b) (ii) of the Income Tax Assessment Act, next, by paying in full the income tax debt and, finally, by paying the balance towards the discharge of the sales tax debt.

The bank has appealed, and the Deputy Commissioner of Taxation has cross-appealed, against the directions which relate to the money in the hands of the receivers. No question is raised as to the directions given to the liquidator. The bank, by its appeal, seeks primarily a declaration that it is entitled in first priority to payment out of the funds in the hands of the receivers. The Deputy Commissioner of Taxation, by his cross-appeal, seeks primarily a declaration that he is entitled to the moneys in the hands of the receivers which represent the net proceeds of the sale of assets subject to the floating charge. In argument, counsel for both these parties suggested various alternative courses that might be adopted.

The directions given by the learned judge had the curious result that on the one hand the security provided to the bank by the floating charge was entirely destroyed, whereas on the other hand, although it was acknowledged that the Deputy Commissioner of Taxation was entitled to priority over the employees, that priority was denied him by the order made. However, in my opinion the case does not involve the complications which the learned judge and counsel thought enshrouded it. No problem arises unless the Deputy Commissioner of Taxation, on behalf of the Crown, on the one hand and the bank and the employees on the other had valid competing claims to be paid out of the moneys in the hands of the receivers.

It is an old and well-established rule that there is "a preference in favour of the Crown in all cases, and touching all rights of what kind soever, where the Crown's and the subject's rights concur, and so come into competition": R. v. Wells [2] . The rule is not confined to the administration of assets - the case cited was one of execution - but applies in any case "where the King's and the subject's title concur": R. v. Wells [2] . However, it will perhaps be in cases of administration that the rights of the Crown and the subject most commonly come into competition. The rule in such cases was stated as follows in In re Henley and Co. [3] : "Whenever the right of the Crown and the right of a subject with respect to the payment of a debt of equal degree come into competition, the Crown's right prevails." In this Court the principle has been applied to cases of winding-up in Federal Commissioner of Taxation v. Official Liquidator of E. O. Farley Ltd. [4] ; In re Foreman and Sons Pty. Ltd.; Uther v. Federal Commissioner of Taxation [5] and The Commonwealth v. Cigamatic Pty. Ltd. (In liq.) [6] . In all of these cases it was recognized that this rule of the prerogative gives preference to the Crown where there is a competition with respect to the payment of debts of equal degree. It is enough to cite two passages. In In re Foreman and Sons Pty. Ltd.; Uther v. Federal Commissioner of Taxation [7] , Latham C.J. said; "Where a claim of the Crown and a claim of a subject come into competition the Crown has priority. In relation to Crown debts the law, if not varied by statute, is that Crown debts are paid in priority to all other debts of equal degree." In The Commonwealth v. Cigamatic Pty. Ltd. (In liq.) [8] Dixon C.J. referred to "the right at common law of the Crown to priority of payment when in any administration of assets debts of equal degree due to the Crown and due to subjects of the Crown come into competition."

1. (1807) 16 East 278, at p. 282 [104 E.R. 1094, at p. 1096]. 2. (1807) 16 East 278, at p. 282 [104 E.R. 1094, at p. 1096]. 3. (1878) 9 Ch. D. 469, at p. 481. 4. (1940) 63 C.L.R. 278. 5. (1947) 74 C.L.R. 508. 6. (1962) 108 C.L.R. 372. 7. (1947) 74 C.L.R., at p. 514. 8. (1962) 108 C.L.R., at p. 376.

The receivers in the present case were not required or empowered to undertake an administration of assets. In Federal Commissioner of Taxation v. Official Liquidator of E. O. Farley Ltd. [9] , Dixon J. said that an administration of assets "may take place when the estate of a deceased debtor is administered by his legal personal representative or by the court, when the affairs of a company or other body are wound up, when there is a bankruptcy and also, in effect, when the debtor is a lunatic so found, or occupies a similar position and perhaps there are other instances". Receivership is not such an instance. It is not the duty of a receiver of the property of a company to ensure that the property in his hands is distributed amongst all the creditors of the company. In the present case, the duty of the receivers under the deed was, so far as is relevant, to apply all moneys which they received under the mortgage deed, after payment of certain costs, charges, expenses and outgoings and of their own remuneration, "in payment to the Bank of the moneys hereby secured and the surplus (if any) shall belong to the Mortgagor": see cl. 3 (viii) of the mortgage deed. Under the deed, the receivers were in no way concerned with any creditors of the company other than the bank. By s. 196 of the Companies Act they were placed under a duty to pay the employees mentioned in that section. However, in the absence of any statutory duty to pay any debt due for tax, and if no liquidation had supervened, the receivers would have been bound to pay to the company the surplus remaining after the employees and the bank had been paid, and costs, charges, expenses, outgoings and remuneration had been met. Neither the deed nor s. 196 required the receivers to make any payment to the Deputy Commissioner of Taxation, and, apart from the possible effect of the statutory provisions to which I am about to refer, the Deputy Commissioner of Taxation had no right or claim to any of the assets realized by the receivers or to the proceeds of the realization. There was accordingly no competition between the Deputy Commissioner of Taxation and the employees or the bank in relation either to payment by the receivers or to payment out of the assets in their hands. The prerogative right of the Crown to priority might have been asserted against the liquidators, or possibly against the company itself, but it had no application to the receivers.

On this view it is unnecessary to consider whether the common law prerogative right of the Crown to priority in relation to the payments of the debts for income tax and sales tax has been displaced by statute: see Attorney-General v. De Keyser's Royal Hotel [10] ; Food Controller v. Cork [11] ; In re Foreman and Sons Pty. Ltd.; Uther v. Federal Commissioner of Taxation [12] ; The Commonwealth v. Cigamatic Pty. Ltd. (In liq.) [13] . If it be assumed that the prerogative right has not been displaced and is still available, nevertheless, for the reasons I have given, that right cannot be asserted against the receivers and has no bearing on the present case.

1. [1920] A.C. 508. 2. [1923] A.C. 647. 3. (1947) 74 C.L.R., at p. 514. 4. (1962) 108 C.L.R., at p. 386.

It remains to consider whether there is any provision of the Income Tax Assessment Act or of the Sales Tax Assessment Act (No. 1) which gave the Deputy Commissioner of Taxation any right to be paid, whether in priority or otherwise, by the receivers. Section 221 of the Income Tax Assessment Act requires the liquidator of a company which is being wound up to apply the assets of the company in payment of tax due under that Act in priority to all other unsecured debts, subject to the proviso to that section. However, the section does not apply to receivers. Sections 221P (2) and 221YU (2) of that Act give priority to the Commissioner in certain cases over all other debts, whether preferential, secured, or unsecured; those sections have no application to this case, and their strong and clear language has no counterpart in any provision relevant to the present circumstances. Section 215 (3) of the Income Tax Assessment Act provides as follows:

(a) shall not without the leave of the Commissioner part with any of the assets of the company or principal until he has been so notified;

(b) shall set aside out of the assets available for the payment of the tax assets to the value of the amount so notified, or the whole of the assets so available if they are of less than that value; and

(c) shall, to the extent of the value of the assets which he is so required to set aside, be liable as trustee to pay the tax.

The expression "trustee" in that sub-section includes a receiver (see s. 215 (1) (b) and the definition of debenture in s. 6 (1)). The notification referred to is that given by the Commissioner pursuant to s. 215 (2) under which the Commissioner is required to "notify to the trustee the amount which appears to the Commissioner to be sufficient to provide for any tax which then is or will thereafter become payable by the company or principal, as the case may be". If the trustee fails to comply with any provision of s. 215, or fails as trustee duly to pay the tax for which he is liable under s. 215 (3), he shall, "to the extent of the value of the assets of which he has taken possession and which were available at any time for the payment of tax, be personally liable to pay the tax, and shall be guilty of an offence": s. 215 (4). The only provision of the Sales Tax Assessment Act (No. 1) which requires mention is s. 32, whose provisions are in similar terms to those of s. 215, but which applies only to liquidators and not to receivers. Although, for this reason, s. 32 has no direct application to the present case, the authorities in which its meaning and effect have been considered are of assistance in determining the meaning of s. 215. In Federal Commissioner of Taxation v. Official Liquidator of E. O. Farley Ltd. [14] it was held that the predecessors of the present ss. 215 and 32 neither conferred any priority nor created any charge. After s. 32 had been amended so that it had assumed its present shape, its effect was considered inIn re Foreman and Sons Pty. Ltd.; Uther v. Federal Commissioner of Taxation [15] and the same conclusions were reached. The sections originally required the liquidator to set aside the requisite sum "out of the assets of the company", whereas in their present form they require assets to the requisite value to be set aside "out of the assets available for the payment of the tax". In In re Foreman and Sons Pty. Ltd.; Uther v. Federal Commissioner of Taxation, Starke J. [16] drew attention to the latter words, saying: "It is to be observed, however, that the liquidator is to set aside the amount of the tax out of "the assets available for the payment of the tax". And that depends, I think, upon a proper and due course of the administration and distribution of the assets." Latham C.J. said [17] that the assets must be set aside and retained to the extent required by s. 32 (2A) and that "The assets must then be applied by the liquidator according to law - i.e., according to common law or any valid statute law". In The Commonwealth v. Cigamatic Pty. Ltd. (In liq.) although Taylor J. [18] indicated that in his opinion the view taken in the earlier cases was open to criticism, the other members of the Court adhered on this point to the earlier decisions. Dixon C.J. said [19] : "However, it may be said that on the view adopted by the majority of the Court in Uther's Case, all the liquidator need do under the provisions is to hold the assets or fund until from other sources of authority the proper application of the same be ascertained or determined." 1. (1940) 63 C.L.R. 278. 2. (1947) 74 C.L.R. 508. 3. (1947) 74 C.L.R., at p. 526. 4. (1947) 74 C.L.R., at p. 517. 5. (1962) 108 C.L.R., at p. 385. 6. (1962) 108 C.L.R., at p. 379.

I see no reason to depart from the ordinary meaning of the words of s. 215 (3) (b) of the Income Tax Assessment Act, particularly when those words have remained unaltered after the discussion in the earlier cases. The moneys in the hands of the receivers were not "assets available for the payment of the tax" until the debt to the bank for which they were security had been paid and until the debts which the receivers were required by s. 196 of the Companies Act to pay had been satisfied. The Deputy Commissioner of Taxation was not entitled under s. 215 of the Income Tax Assessment Act to be paid by the receivers except out of such moneys as remained after the debts to the bank and the employees had been paid: the remaining moneys were the only "assets available for the payment of the tax".

In my opinion therefore neither common law prerogative nor statutory right entitled the Deputy Commissioner of Taxation to payment by the receivers in priority either to the employees or to the bank. From what I have said it is apparent that the moneys in the hands of the receivers will be sufficient to pay in full the debts due to the employees under s. 196 and the debt due to the bank, but that the balance, when applied towards the debt due for income tax, will be exhausted before that debt has been fully satisfied.

In my opinion the receivers are bound to apply the moneys under their control as follows: (1) As to the net proceeds of sale of the assets subject to the fixed charge, by applying those proceeds towards discharging the debt to the bank. (2) As to the net proceeds of the sale of the assets subject to the floating charge, in the following order - (i) in payment in full of the debts due to the employees under s. 196 of the Companies Act; (ii) in payment of the balance of the debt due to the bank; (iii) in payment to the Deputy Commissioner of Taxation on account of the debt for income tax.

I would allow the appeal, dismiss the cross-appeal, and give directions accordingly.

I agree with the reasons for judgment of Gibbs J. and with the order which he proposes.

I am in agreement with the reasons for judgment prepared by Gibbs J.

In reaching the conclusion that the Crown in right of the Commonwealth had no prerogative right to priority exercisable against the receivers, I have assumed that there were procedures available to the Crown by which it could have asserted against the company a right to payment of its debt in priority to other unsecured creditors. The availability of these procedures is of no avail to the Crown in this case. First, the Crown has not resorted to them. Secondly, the procedures would, if exercised, at best enable the Crown to obtain payment out of assets in the hands of the company. They would not enable the Crown to obtain payment out of the assets in the hands of the receivers appointed by the bank as a secured creditor pursuant to the deed of mortgage.

By the mortgage the receivers were expressed to be agents of the company. The effect of this provision was to make the company liable on contracts entered into by the receivers in the course of their receivership. It did not arm the receivers with general power to pay the debts of the company for, as we know, sub-cl. 3 (viii) defined with precision what the receivers should do with moneys coming into their hands. The sub-clause did not authorize the payment of debts. It required the receivers, after payment of the secured creditor's principal and interest, to pay to the company the surplus remaining.

Consequently, the receivers are bound to deal with the moneys coming into their hands in accordance with sub-cl. 3 (viii) of the mortgage which represents the formal bargain made between the company and the secured creditor. The receivers cannot use the moneys for the payment of general creditors or otherwise deal with them at the direction of the company. So to do would involve a contravention of the sub-clause.

The Crown's prerogative right may therefore be exercised against the liquidator once the surplus is paid by the receivers pursuant to sub-cl. 3 (viii), but it cannot be exercised against the receivers.

In the result, I would therefore allow the appeal, dismiss the cross-appeal and give directions in the form stated by Gibbs J.

This case results from the confusion of insolvency laws, particularly those dealing with priority of debts. The confusion arises from the existence of federal as well as State Acts dealing with various aspects of the problem, such as the Bankruptcy Act 1966 Cth, as amended, the Income Tax Assessment Act 1936 Cth, as amended, and Companies Acts of the States, and is worsened by the continued operation of common law preference for Crown debts. The confused and often unjust operation of the common law is examined in the Report on Priority of Crown Debts (Senate Standing Committee on Constitutional and Legal Affairs: June 1978). In recommending the abrogation of Crown priority, the Committee said (p. 69):

The complexity of the law, arising out of the many sources of law which regulate insolvency administrations, has led to a needless waste of the remaining assets through receivers and liquidators being obliged to seek directions from the courts as to how they can reconcile their conflicting obligations under State and Federal laws. This in turn has led to further delays and consequent hardship while matters are before the courts.

Most companies become insolvent soon after their formation. Provisions for incorporation, limited liability, meetings, accounts, auditing and other supervision, are for the protection from insolvency of the company, its shareholders and creditors. State Companies Acts may, in a sense, be regarded as insolvency Acts.

The Commonwealth Parliament has ample power to deal with all aspects of insolvency. The Constitution (s. 51 (xvii.)) which empowers the Parliament to make laws with respect to bankruptcy and insolvency, authorizes measures for the prevention of and dealing with the consequences of insolvency of artificial as well as natural persons.

The receivers had no duty under the deed to pay the company's creditors other than the Bank of New South Wales. Section 292 of the Companies Act, 1961 N.S.W., as amended, requires them to pay (in priority to the bank) amounts for employees' wages and leave, and payments so made shall be recouped as far as may be out of the company's assets available for payment to the general creditors (s. 196 (3)).

A secured debt is one where the secured creditor is entitled to be paid out of the security in priority to the unsecured creditors. Security is anything that makes the money more secure or assured in its recovery. A debt to be paid in priority to those described as secured debts is not of equal degree to an unsecured debt. The Companies Act has created a statutory security in favour of employees' wages, etc. As these must be paid before payment of the debt secured by the deed, it is difficult not to regard the amounts owing for wages, etc. as a secured debt within s. 221 of the Income Tax Assessment Act; recoupment from general assets (in favour of the debt secured by the deed) of the amounts paid for wages, etc. also gives a collateral statutory security for that purpose. There is nothing in the federal or State legislation to suggest that a debt secured under a deed should lose its ordinary rights under the security (except against the employees' wages, etc.).

I have had the advantage of reading the reasons for judgment prepared by my brother Gibbs. I agree with those reasons and the order there proposed.

I agree with the reasons of Gibbs J., and therefore would allow the appeal, dismiss the cross-appeal, and give the directions proposed by him.