Do trust structures alter SG debt priorities?

A recent NSW Supreme Court decision has opened the way for companies through a trust structure to avoid their obligations under priority structures applying to superannuation guarantee (SG) debts under the Corporations Act.

A submission to the Senate Economics Committee inquiry into Superannuation Guarantee non-payment has been told by a chartered accountant and registered liquidator, Geoff Green that the consequences of the recent decision that the statutory priorities thought to apply to SG debts, do not apply in respect of trust assets.

Green said the court's decision meant that a business that is operated through a trust structure is outside of the operation of section 556 of the Corporations Act.

"This decision affects the priority afforded to SG debts under sub-section 556(1)(e)(i), but for clarity it also applies to all forms of employee entitlements, such as unpaid wages and annual leave," his submission said."In commercial practice the use of discretionary trusts is widespread, and so the decision will impact the entitlements and superannuation administration of many thousands of employees."

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"There is a very large group of stakeholders potentially impacted by the decision, and if actually impacted, they will be very significantly disadvantaged," he said.

"If the level of protection afforded to employee superannuation and other priorities is dependent on the type of structure used by the employer, then in practical terms, that is:

• Inequitable, because there is no business or commercial justification for such a difference; and
• Impractical, because we cannot expect employees to be able to identify the type of structure by which they are employed, or understand the consequences of the structure.

Green has recommended that Corporations Act be modified so that the section 556 priorities apply in all liquidations.