Paying employees at the death — securing the benefit of the statutory priority

By Michael Hughes

A recent decision by the Supreme Court of New South Wales, In the matter of Dalma No 1 Pty Ltd (in liquidation) (ACN 111 772 260); Application of Bruce Gleeson and David Shannon in their capacity as joint and several liquidators of Dalma No 1 Pty Ltd (in liquidation) and anor [2012] NSWSC 1335 has highlighted an important limitation to section 560 of the Corporations Act 2001 (Cth). Namely, funds must be advanced to the company to enable the employees to be paid — and not advanced directly to employees. Although the decision does suggest it may be sufficient if the company specifies that proceeds be paid directly to the employees.

This was a key provision of the former General Employee Entitlements and Redundancy Scheme, which was used by the Commonwealth government as a basis to secure the recovery of funds it paid out to employees under the scheme. It can also be used as a vehicle for the provision of emergency funding for a company in distress.

Section 560 of the Corporations Act 2001 (Cth) provides a mechanism for creditors and other stakeholders to make advances to an insolvent company to meet outstanding employee entitlements, and in so doing secure an equivalent level of priority for the advance that the employee would have enjoyed…

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