DP Excavation & Haulage Pty Limited v Commissioner of Taxation [2005] NSWSC 533 | Case summary

1753/05 - DP EXCAVATION & HAULAGE PTY LIMITED & ORS v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA JUDGMENT 1 The plaintiffs in this case are DP Excavation & Haulage Pty Ltd ("the company") and its liquidators, Mr Burton and Mr Allen. The winding up of the company followed on from voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth) and is accordingly the type of creditors voluntary winding up produced by s.446A. Mr Burton and Mr Allen became the liquidators on 14 October 2002, having been appointed administrators on 17 September 2002. 2 At the commencement of the voluntary administration, the company had failed to provide the minimum level of superannuation support for its employees necessary to avoid the imposition of superannuation guarantee charge. It is common ground that, as a result, the company had become liable to superannuation guarantee charge equivalent to the deficiency plus an interest component and an administrative charge. It is also common ground that that aggregate amount had become a debt due to the Commonwealth and payable to the defendant Commissioner of Taxation. 3 The plaintiffs seek relief by way of declaration as against the Commissioner. The first declaration sought is a declaration that each of five named persons is an "excluded employee" of the company as defined by s.556(2) of the Corporations Act. The second and third declarations sought are: "2. A declaration that the priority afforded the Defendant by section 556(1)(e) of the Corporations Act and section 52 of the Superannuation Guarantee (Administration) Act 1992 (' the SGA Act ') in the winding up of the First Plaintiff for and in respect of a 'superannuation contribution' (as that term is defined in section 556(2) of the Corporations Act) is subject to section 556(1A) of the Corporations Act. 3. A declaration that the amount payable to the Defendant in respect of the Superannuation Guarantee charge which the Defendant seeks to prove in the winding up of the First Plaintiff in respect of each excluded employee of the First Plaintiff is by virtue of the operation of Section 556(1A) of the Corporations Act and Section 52 of the SGA Act not to exceed $2,000." 4 The case the plaintiffs seek to make in support of the grant of these declarations depends upon the construction and interpretation of ss.556(1)(e) and 556(1A) of the Corporations Act (interpreted in the light of the definitions in s.556(2)), as they apply in the light of s.52 of the Superannuation Guarantee (Administration) Act 1992 (Cth). 5 Section 556(1) of the Corporations Act specifies the order in which the debts and claims with which it deals are to be paid in a winding up "in priority to all other unsecured debts and claims". It sets out, in order of priority, various categories of debts and claims, each of which, after the first, is introduced by the word "next". Section 556(1) is as follows: " Priority payments (1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims: (a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business; (b) if the Court ordered the winding up - next, the costs in respect of the application for the order (including the applicant's taxed costs payable under section 466); (c) next, the debts for which paragraph 443D(a) entitles an administrator of the company to be indemnified (even if the administration ended before the relevant date), except expenses covered by paragraph (a) of this subsection and deferred expenses; (d) if the winding up began within 2 months after the end of a period of official management of the company - next, debts of the company properly incurred by an official manager in carrying on the company's business during the period of official management, except expenses covered by paragraph (a) of this subsection and deferred expenses; (da) if the Court ordered the winding up - next, costs and expenses that are payable under subsection 475(8) out of the company's property; (db) next, costs that form part of the expenses of the winding up because of subsection 539(6); (dc) if the winding up began within 2 months after the end of a period of official management of the company - next, the remuneration, in respect of the period of official management, of any auditor appointed in accordance with Part 2M.4; (dd) next, any other expenses (except deferred expenses) properly incurred by a relevant authority; (de) next, the deferred expenses; (df) if a committee of inspection has been appointed for the purposes of the winding up - next, expenses incurred by a person as a member of the committee; (e) subject to subsection (1A) - next, wages and superannuation contributions payable by the company in respect of services rendered to the company by employees before the relevant date; (f) next, amounts due in respect of injury compensation, being compensation the liability for which arose before the relevant date; (g) subject to subsection (1B) - next, all amounts due: (i) on or before the relevant date; and (ii) because of an industrial instrument; and (iii) to, or in respect of, employees of the company; and (iv) in respect of leave of absence; (h) subject to subsection (1C) - next, retrenchment payments payable to employees of the company." 6 Section 556(1A) reads: "The amount or total paid under paragraph (1)(e) to, or in respect of, an excluded employee of the company must be such that so much (if any) of it as is attributable to non-priority days does not exceed $2,000." 7 It is necessary to quote in full two of the definitions in s.556(2): "'excluded employee' in relation to a company, means: (a) an employee of the company who has been: (i) at any time during the period of 12 months ending on the relevant date; or (ii) at any time since the relevant date; or who is, a director of the company; (b) an employee of the company who has been: (i) at any time during the period of 12 months ending on the relevant date; or (ii) at any time since the relevant date; or who is, the spouse of an employee of the kind referred to in paragraph (a); or (c) an employee of the company who is a relative (other than a spouse) of an employee of the kind referred to in paragraph (a)."

(The named persons, other than P F Shearer, are the persons mentioned in paragraph 1 of the originating process.) 11 While statement (b) above reflects a mixed conclusion of fact and law, it is obviously a statement to which both the plaintiffs and the defendant Commissioner have deliberately subscribed and upon which they intend that the court should act. I therefore take it to be a concession providing me with the foundation for making, without further inquiry, the first declaration in the originating process, at least as regards the six years mentioned. 12 I now turn to the question posed by the plaintiffs' second and third claims, namely, as to the priority in the winding up of debts to the Commissioner of Taxation for superannuation guarantee charge. 13 It is necessary, at this point, to say more about the superannuation guarantee charge legislation. If an employer fails to provide a prescribed minimum level of superannuation support for an employee in a particular calendar quarter (by making contributions to a superannuation scheme for the benefit of the employee), the employer has an "individual superannuation guarantee shortfall" in respect of that employee for that quarter. This is the effect of s.19 of the Superannuation Guarantee (Administration) Act. If the employer has one or more "individual superannuation guarantee shortfalls" for a particular quarter, the employer has, for that quarter, a "superannuation guarantee shortfall" calculated in accordance with s.17. It is the aggregate of three things. The first is the total of the employer's "individual superannuation guarantee shortfalls" for the quarter. The second is the employer's "nominal interest component" for the quarter - essentially, an interest element calculated under s.31. The third is the employer's "administration component" for the quarter. Under s.32, this is currently a "base amount" of $50 plus $20 per relevant employee. 14 Under Part 4 of the Superannuation Guarantee (Administration) Act, provision is made for the assessment of "superannuation guarantee shortfall", that is, the composite sum for a quarter made up of the aggregate of individual superannuation guarantee shortfalls for the quarter, the nominal interest component and the administration component. The Superannuation Guarantee Charge Act 1992 (Cth) imposes "charge" on any "superannuation guarantee shortfall" of an employer for a quarter. It is relevant to quote ss.5 and 6 of that Act: " Imposition of charge 5. Charge is imposed on any superannuation guarantee shortfall of an employer for a quarter. Amount of charge 6. The amount of superannuation guarantee charge payable on a superannuation guarantee shortfall of an employer for a quarter is an amount equal to the amount of the shortfall." 15 Section 46 of the Superannuation Guarantee (Administration) Act specifies the day on which superannuation guarantee charge "is payable". Collection and recovery of superannuation guarantee charge are dealt with in Part 5 of the Superannuation Guarantee (Administration) Act and Part 4-15 of Schedule 1 to the Taxation Administration Act 1953 (Cth). It is sufficient to note that charge that is due and payable is a debt due to the Commonwealth and is payable to the Commissioner and may be recovered by the Commissioner or a Deputy Commissioner by action in a court of competent jurisdiction: clause 255-5 of Schedule 1 of the Taxation Administration Act. 16 The Taxation Administration Act makes provision, in ss.8AAA to 8AAH, for the charging and recovery of interest on overdue tax amounts. Overdue superannuation guarantee charge is within these provisions. Interest thus levied is referred to as "general interest charge". 17 Once received or recovered by the Commissioner, a particular amount of charge (and, if general interest charge or penalty has been attracted, that charge or penalty) must be dealt with in accordance with Part 8 of the Superannuation Guarantee (Administration) Act. Part 8 requires calculation of the "shortfall component" of the amount received or recovered. This "shortfall component" is calculated in relation to each relevant employee. The method of calculation is set out in ss.64A and 64B. In somewhat simplified terms, the "shortfall component" of a particular employee is that employee's proportion (according to respective individual superannuation guarantee shortfalls) of so much of the amount received or recovered by the Commissioner as is equal to the employee's individual superannuation guarantee shortfall, the general interest charge component of the amount and the nominal interest component. The "administration component" is thus left out of the calculation of an employee's "shortfall component" of a particular amount received or recovered by the Commissioner but interest elements are included. 18 After the "shortfall component" referable to a particular employee has been ascertained, it must, in most cases, be applied by the Commissioner for the employee's benefit in accordance with s.65 of the Superannuation Guarantee (Administration) Act. This must be done, in general terms, by means of payment for the benefit of the employee into a retirement savings account under the Retirement Savings Accounts Act 1997 (Cth), an account with a complying superannuation fund or an account with a complying approved deposit fund. There are, however, exceptions relevant to employees over the age of 65, employees who have retired because of permanent incapacity or invalidity and employees who have died. 19 The system based on quarterly payments has prevailed only since 1 July 2003. Before that date, annual payments were required but the operation of the system was otherwise the same 20 The legislative provisions with respect to superannuation guarantee charge are somewhat complex but the underlying principle is straightforward. If an employer does not voluntarily make in respect of an employee the specified minimum superannuation contribution, the employer becomes liable to pay an amount equal to that contribution to the Commissioner, together with interest and an administration charge; and the Commissioner, having received that aggregate, must apply all of it except the administration charge for the benefit of the employee in essentially the way that the employer would have applied it had the employer elected to make the contributions necessary to avoid the imposition of the charge. It is against that background that I approach the questions relevant to the claims for the second and third declarations sought in these proceedings. 21 The central issue is whether the combined effect of ss.556(1)(e) and 556(1A) of the Corporations Act and s.52 of the Superannuation Guarantee (Administration) Act is to cause the limit of $2,000 applicable under s.556(1A) to operate in a s.52 case and, if so, how it operates. 22 Any superannuation guarantee charge payable by a company which is being wound up will be admissible to proof in the winding up in accordance with s.553 of the Corporations Act. Because of the taxation legislation to which I have referred it will be within the category "all debts payable by … the company", so that, in terms of s.553(1), its admissibility will depend on its having the specified relationship with the "relevant date" as defined by s.9. No provision of the Corporations Act affords a debt of this kind priority over any debt for the purposes of the winding up. That task is performed by s.52 of the Superannuation Guarantee (Administration) Act. 23 The latter Act does not define "company" and, to that extent, does not seek explicitly to identify the bodies with which s.52 is concerned. But the reference in s.52 to s.556(1)(e) of the Corporations Act makes it clear, in my opinion, that the bodies with which s.52 is concerned are those in relation to the winding up of which s.556 of the Corporations Act is applicable. The company the subject of these proceedings is such a body. 24 The effect of s.52 is to cause a debt for superannuation guarantee charge (being a debt of the company payable to the Commissioner of Taxation) to have, "for the purposes of payment", what is described as "a priority equal to that of a debt of the company of the kind referred to in paragraph 556(1)(e) of the Corporations Act 2001". Mr Eassie of counsel, who appeared for the plaintiffs, saw special significance in the words "for the purposes of payment". My view is that those words do no more than provide a link to the aspect of s.556(1) that says the several debts and claims described in s.556(1) "must be paid" in priority to all other unsecured debts and claims. Section 52, by laying down with respect to one type of debt of the company, a special rule "for the purposes of payment", is directing that that special rule be observed when implementing rules generally prevailing under s.556(1) as to what "must be paid" in priority to all other unsecured debts and claims. Section 556(1) is a provision about priorities for the purposes of payment - or as to the way in which certain debts shall "rank for payment" (to adopt the terminology in the Canadian legislation considered in Re Silver Brothers Ltd [1932] AC 514). The use of the words "for the purposes of payment" in s.52 does no more than explain that s.52 is, like s.556(1), a provision about payment priority and the way in which the particular kind of debt with which it is concerned is to rank for payment as against other debts. 25 The words "subject to subsection (1A)" at the start of s.556(1)(e) allow to be brought within s.556(1)(e), in a case to which s.556(1A) applies, only so much of the amounts within the s.556(1)(e) description referable to a particular excluded employee (i.e., wages or superannuation contributions payable to or in respect of the excluded employee) as is allowed by s.556(1A), leaving the balance to be part of the "other unsecured debts and claims" mentioned at the start of s.556(1). 26 The question posed in the present case is as to the effect of "subject to subsection (1A)" when determining the priority afforded by s.52. It is the contention of the defendant Commissioner of Taxation that the "subject to subsection (1A)" qualification is, in every case, inoperative when the priority created by s.52 (being a priority "equal to" that arising under s.556(1)(e)) comes to be applied to a debt for superannuation guarantee charge. This, it is submitted, is because s.556(1A) looks to whether the "amount or total paid under paragraph (1)(e) to, or in respect of, an excluded employee of the company" would, but for the impact of s.556(1A) itself, be greater than $2,000; and an amount or total will be paid "under paragraph (1)(e)" only if it represents wages payable to an employee or superannuation contribution payable in respect of an employee. A payment of superannuation guarantee charge is, on no basis, a payment of wages "to" an employee. Is it possible to characterise it as a "superannuation contribution" paid "in respect of" an employee? 27 There is, to my mind, a cogent basis for regarding a sum payable as superannuation guarantee charge, once paid, as a sum paid "in respect of" one or more employees. When superannuation guarantee charge is paid by or recovered from an employer, a statutory liability imposed for the clear purpose of benefiting a particular employee or particular employees of the employer by way of superannuation cover is discharged. Under the statutory system, the charge paid by or recovered from the employer becomes a source from which the recipient Commissioner makes payments which have, in relation to employees, the same beneficial and protective effect that would have been produced by the employer's voluntary payment of superannuation contributions in respect of those employees. Every sum paid or recovered as superannuation guarantee charge is referable to failure by an employer to meet criteria with respect to voluntary making of superannuation contributions for the benefit of identified employees. The superannuation guarantee charge system is the means of securing compulsory compliance with those criteria for the benefit of those employees. The Commissioner is cast by that system in the role of a collecting and paying authority or clearing house through which sums that could have been paid by employers into superannuation funds for the benefit of employees are levied by compulsion upon those employers and directed to destinations of the kind to which the employers would have directed them. An interest component accompanies the principal sum on that journey, but an administrative charge is retained by the Commissioner along the way. Except to the extent of the administration charge, it might well be said that the payment of the superannuation guarantee charge was a payment "in respect of" the employees concerned. 28 But even if a payment of superannuation guarantee charge can, on this basis, be said to be made "in respect of" identified employees, it does not follow that the payment has the character of "superannuation contributions". This is because a "superannuation contribution" is a "contribution by the company to a fund" [emphasis added] for the purposes described in the s.556(2) definition. By paying superannuation guarantee charge, a company does not make a "contribution" to any "fund". It discharges a debt created by statute, which debt is imposed because of the company's failure to make a "contribution" to a "fund" of the kind referred to in the s.556(2) definition of "superannuation contribution". 29 The common priority conferred by s.556(1)(e) and s.52 is a priority shared alike by "wages" which, of their nature, are payable to employees, "superannuation contributions" which, in light of the s.556(2) definition, are not payable to employees but to a fund (often, no doubt, in discharge of obligations owed to employees) and "any superannuation guarantee charge payable by the company", being a debt payable to the Commissioner of Taxation. Sums paid for wages and superannuation contributions are the only items that, in terms of s.556(1A), can be said to be paid "under paragraph (1)(e)" to, or in respect of, employees. A payment of superannuation guarantee charge made so as to rank, on the scale of payments, equally with a payment under s.556(1)(e) is not itself an amount "paid under s.556(1)(e)", even though it may, in the sense I have described, be said to be a payment "in respect of" certain employees. 30 As Mr Aldridge SC and Mr Quinn of counsel emphasised on behalf of the Commissioner, the legislation does not cause a debt for unpaid superannuation guarantee charge to rank for payment in a winding up as if it were superannuation contributions payable by the company as referred to in s.556(1)(e) - for example, by deeming such a debt to be a debt for wages or superannuation contributions. That being so, the qualification upon the operation of s.556(1)(e) effected by making that provision subject to s.556(1A) applies only where the debt being placed in its appropriate position on the scale in which s.556(1) plays a part is a debt for "wages" or "superannuation contributions" as such. It does not apply where the debt is a debt for superannuation guarantee charge. 31 The separateness of superannuation contributions and superannuation guarantee charge is emphasised in the judgment of Mandie J in Deputy Commissioner of Taxation v Rathner (2004) 211 ALR 316. The question at issue thee was whether the Commissioner of Taxation was entitled to prove and participate under a deed of company arrangement in respect of unpaid superannuation guarantee charge when the company - albeit late - had paid the superannuation contributions default in relation to which had led to assessment and imposition of the charge. Both the assessment of charge and late payment of superannuation contributions occurred before execution of the deed of company arrangement. The deed administrator contended that participation by the Commissioner was precluded by "the rule against double proof". Mandie J, after referring to Re Oriental Commercial Bank; Ex parte European Bank (1871) LR 7 Ch App 99 and Barclays Bank Ltd v T.O.S.G. Trust Fund Ltd [1984] AC 626 (among other cases), said that the relevant rule was against "double dividends" rather than "double proof". His Honour held that the rule was not attracted by the circumstances before him because the only proof or claim under the deed was that of the Commissioner. Dealing with an alternative submission that the contributions and the charge represented "substantially the same debt", Mandie J said (at [33]): "The payment of a debt by a company prior to the commencement of its liquidation or administration is generally irrelevant to unsecured creditors who subsequently wish to claim on a limited fund (unless, for example, the payment has extinguished a relevant debt, or the payment is voidable as against the liquidator or administrator). However, let it be assumed, for the sake of the argument, that the company, after 28 July of the relevant year, had a continuing contractual obligation to each of its employees to make the superannuation contributions which it subsequently made, notwithstanding its liability after that date to pay the superannuation guarantee charge. Concededly, that contractual obligation is not the 'same' debt as the superannuation guarantee charge liability (in whole or in part). The tax liability is not discharged by the company's 'late' payment of contributions. Moreover, the tax liability arises under the SGA Act whether or not the employer has any such contractual obligation to make superannuation contributions (either before or after 28 July). There is thus no necessary relationship between the existence of the contractual obligation and the imposition or existence of the tax liability." 32 His Honour's observation that the particular employer's contractual obligations to employees to make superannuation contributions for their benefit "is not the 'same' debt as the superannuation guarantee charge liability (in whole or in part)" is, in my view, of particular relevance to the present case. It emphasises the separateness which, in my view, causes s.556(1A) not to operate in relation to superannuation guarantee charge, despite the equality of priority created by s.52. 33 My conclusion is that the qualification imposed by s.556(1A) does not operate in such a way as to affect the priority created by s.52 and that the $2,000 limit imposed by s.556(1A) does not operate in relation to a debt for unpaid superannuation guarantee charge. Because of s.52, it is the whole of such a debt that ranks for payment pari passu with such sums as are within s.556(1)(e) as it applies after allowing for the operation of s.556(1A); and this is so whether or not any of the employees relevant to a particular imposition of superannuation guarantee charge is an "excluded employee" as defined by s.556(2). 34 It follows that the two declarations concerning the interaction of ss.556 and 52 sought by the plaintiffs (as set out at paragraph [3] above) will not be made. I do, however, make a declaration as follows: Declare that each of Kenneth Francis Cummins, Nancy Fay Cummins, Kraig Francis Cummins, Kristopher John Cummins and Kelly Adam Cummins was, in respect of each of the years ended 30 June 1998, 1999, 2000, 2001, 2002 and 2003, an "excluded employee" of the first plaintiff (as the term is defined in s.556(2) of the Corporations Act 2001 (Cth)) for the purposes of s.556(1A) of that Act. 35 Any party claiming an order for costs should furnish written submissions on costs within fourteen days. Any submissions in response should be in writing and furnished within a further fourteen days. **********

DP Excavation & Haulage Pty Limited v Commissioner of Taxation

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Judgment (17 paragraphs)

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