Australia’s Child Support Agency (CSA) is reminding insolvency practitioners of the status of pre-appointment child support deductions.
CAS says that unremitted child support deductions withheld from an employee’s wages by an insolvent employer must be paid ahead of most other debts, whether preferential, secured or unsecured.
It is pointing out that liquidators, receivers, receivers and managers, company administrators and deed administrators are “trustees” as defined in section 4 of the Child Support (Registration and Collection) Act 1988 (the CSRC Act).
The CSRC Act makes trustees liable to pay the child support debt to CSA (Section 50(1)). It also endows such debts with priority over other preferential, secured or unsecured debts (S.50(2)(a)).
CAS says that this section takes precedence over the priority provisions of the Corporations Act 2001 because it is made applicable “notwithstanding any other law of the Commonwealth or any law of a State or Territory”.
Fortunately for insolvency practitioners/trustees the CSRC Act ranks the trustee’s remuneration ahead of the child support debt (S.50(2)(a)). Trustees remuneration is specifically included in the only class of costs granted priority over child support debts, namely “costs, charges or expenses of the administration of the estate or of the winding up of the company that are lawfully payable out of the assets of the estate or of the company”.
Also specifically included in this special class are the “costs of a creditor or other person on whose petition the sequestration order or the winding up order (if any) was made”.
To obtain this priority both the remuneration and the costs of the petitioning creditor must be “lawfully payable out of the assets of the estate or of the company”. Presumably this means that they must satisfy all relevant requirements in the Corporations Act 2001.
According to the Insolvency Practitioners Association of Australia (IPA), CSA is seeing an increase in letters from liquidators claiming, incorrectly, that a child support debt has no priority.
Notice of appointment and clearance from CSA
Although there appears to be no specific law requiring a “trustee” to notify CSA of his or her appointment, it should be done:
- where the trustee is aware that a current or former employee or contractor of the company is or has been making child support payments to CSA; and
- where there is amongst the company’s records a letter from CSA titled either Schedule of Child Support Deductions or Notice Pursuant to Section 72A.
Even if such circumstances don’t appear to exist but the company has used or is using the services of employees or non-corporate contractors, trustees should – with the possibility of a high priority debt existing – take the precaution of informing CSA of the insolvency appointment and requesting written advice as to whether CSA has anyone on its books for the company.
According to Ms Sue Saunders, Assistant Director of CSA’s Employer Services division, who I spoke to today, CSA is happy to check its records and respond to such requests.
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