CROWN DEBTS PRIORITY OF COMMONWEALTH CROWN DEBTS IN LIQUIDATION OF COMPANIES: COMMONWEALTH AND STATE CROWN DEBTS RANK PARI PASSU: POWER OF STATES TO LEGISLATE SO AS TO DESTROY PREROGATIVE PRIORITY OF COMMONWEALTH
COMPANIES ACT (NSW) 1936
I refer to my previous memoranda of 23rd October and 3rd November, 1939(1) (your G.39/10701), relative to the priority of Commonwealth debts on the winding-up of a company.
The decision of the High Court, on appeal from the Supreme Court of New South Wales, in the case of in re E. O. Farley Ltd. (In Liquidation)(2) has now been given. So far as the actual decision is concerned it is clear, firstly, that unless altered by legislation the prerogative right of the Crown, both in the right of the Commonwealth and the States, to rank before all other creditors on the winding-up of a company exists in equal degree and that in all such cases the Commonwealth and the State will rank pari passu and, secondly, that so far as income tax, sales tax and telephone charges are concerned no legislation has been enacted by the Commonwealth to alter this position.
This decision, however, leaves an acute problem still unsolved. This problem is present particularly in New South Wales where the present Companies Act purports to bind the Crown and, with certain exceptions of which telephone charges are not one, postpones Crown debts to other specified creditors. The same problem, although there are other considerations, presents itself in South Australia.
Only Dixon J. discussed this aspect in the course of his judgment. His Honour took the view, firstly, that the States could not legislate so as to destroy the prerogative priority of the Commonwealth. If this is so the problem necessarily arises as to the position where a State has purported to postpone both the Commonwealth and State debts to other creditors, but provides that the Commonwealth and State debts shall rank pari passu. If this provision, in so far as it relates to Commonwealth debts, is invalid it is difficult to know whether the provision, in so far as it relates to State debts, operates to postpone those State debts to the Commonwealth debts. His Honour considered a similar problem (i.e. the application of the bankruptcy priorities to the winding-up of a company) and reached the conclusion that, as those priorities could not be applied by the State to bind the Crown in the right of the Commonwealth, they should be treated as being also inapplicable to the Crown in the right of the State. In consequence of the views expressed by His Honour, I am of the opinion that the Commonwealth should rank pari passu with the States in priority to all other creditors irrespective of whether the State has purported to postpone the Commonwealth and State claims to those other creditors.
Applying this view to the cases of the Imperial Hotel Limited and Eddys’ Limited, I consider that, in the former case, the Commonwealth should rank pari passu with the State Government, and, in the latter case, where the debt for telephone charges is the only Crown debt, the Commonwealth should claim priority to all creditors.
[Vol. 33, p. 221]
(1) Opinions not found.
(2) (1940) 63 CLR 278.