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  • Superannuation and insolvency

    The following information sets out how superannuation affects various insolvency administrations.

    Since 31 December 2007, the superannuation guarantee charge has been required to be paid before payments to ordinary unsecured creditors. This means it ranks equally with employees' entitlements for wages and super contributions as long as there are assets available for distribution to priority creditors.

    Consequently, the superannuation guarantee charge is included in the capped amount of $2,000 that certain excluded employees, such as directors and their relatives, can claim as a priority.

    Superannuation Guarantee Charge

    The superannuation guarantee charge (SGC) is the total of the individual employee shortfalls plus the administration component plus the nominal interest component.

    Insolvency practitioners need to report any superannuation shortfalls by lodging an SGC statement with the ATO.

    In order for the ATO to raise the correct SGC assessments, we require the following information for each employee:

    • full name
    • date of birth
    • address
    • tax file number (TFN)
    • super guarantee (separate for each quarter)
    • excluded/capped employees clearly identified.

    To submit the information electronically, refer to Super guarantee charge statement - Tax Agent Portal and Business Portal users.

    Once you submit the form, the superannuation account will be updated automatically and we will issue a statement of account without delay.

    Liquidation

    Since 31 December 2007, the superannuation guarantee charge together with superannuation contributions has been included in Section 556(1)(e) of the Corporations Act 2001.

    Superannuation guarantee charge claims in respect of excluded employees, such as directors and their spouses, will be a priority to the extent of the first $2,000 claimed. Any amounts exceeding $2,000 will rank with unsecured creditors.

    Deeds of company arrangement

    Since 31 December 2007, all deed of company arrangement have been required to include a clause to the effect that 'eligible employee creditors' will enjoy a priority under the administration at least equal to what they would have received had there been a winding up. The definition of the term "eligible employee creditor" is defined to include a creditor with a liability that falls within the priority afforded by section 556(1)(e) of the Corporations Act2001. The Tax Office's claim for the superannuation guarantee charge falls within this definition.

    Claims by an 'eligible employee creditor' are to be paid in priority to other unsecured creditors and ahead of any priority that otherwise might be enjoyed by a charge holder.

    Affected employees may vote down the inclusion of such a provision at a meeting held prior to the second meeting of creditors. This will depend on their notice of that meeting receiving a written opinion from the administrator, (with reasons for the opinion and other relevant information), on whether the non-inclusion of that provision would likely result in the same or better outcome for them compared to what they would have received on an immediate winding up.

    Receivership

    Although not specifically legislated for, the inclusion of the superannuation guarantee charge as a priority debt in section 556(1)(e) of the Corporations Act means that the superannuation guarantee charge will obtain a priority in a receivership through the operation of section 433(3)(c) of the Corporations Act. The superannuation guarantee charge will be treated in the same way as other wage related priority debts under section 556(1)(e).

    Bankruptcy

    The superannuation guarantee charge has been afforded priority in bankruptcy under section 109 (1C) of the Bankruptcy Act 1966 since 5 May 2003. The priority under section 109(1C) extends to general interest charge in respect to the non-payment of the superannuation guarantee charge. The superannuation guarantee charge is included in the category of employee entitlements including salary, wages or commission.

    The maximum amount subject to the priority is adjusted annually:

    • $4,450 for the year ending 30 June 2017
    • $4,500 for the year ending 30 June 2018

    Part IX and X arrangements

    There is no legislative requirement for the superannuation guarantee charge to be afforded a priority in arrangements made pursuant to Parts IX and Part X of the Bankruptcy Act 1966. However, trustees frequently address this anomaly by including a clause in the deed that gives the superannuation guarantee charge a similar priority to that which it would have received in bankruptcy. The Commissioner may vote against a deed that does not provide priority for superannuation guarantee charge if bankruptcy would yield a greater return.

    Double proofs

    Since 31 December 2007 external deed of company arrangement (DOCA) administrators have been required to reject a proof of debt from a superannuation fund for a superannuation contribution that results in a superannuation guarantee charge (section 444DB). The superannuation guarantee charge will be preferred since it includes an interest component, providing employees a greater benefit. All DOCAs must now contain a provision to that effect.

    Liquidators will also have the power under section 553(1A) of the Corporations Act 2001 to reject the whole or part of a proof of debt for superannuation where the amount has already been paid by way of the superannuation guarantee charge or there is an admissible proof for the superannuation guarantee charge.

    How dividend payments are applied

    Section 64B of the SGAA sets out a formula for the allocation of payments received on a pro rata basis.

    Last modified: 21 Aug 2019QC 18228