Opinion Number. 393

Subject

CROWN DEBTS WHETHER COMMONWEALTH HAS PREFERENCE IN RESPECT OF MONEYS DEPOSITED WITH BANK IN EVENT OF ITS INSOLVENCY : WHETHER STATE LEGIS

Key Legislation

BANKRUPTCY ACT 1898 (N.S.W.)

Date
Client
The Secretary to the Treasury

The Secretary to the Treasury has forwarded the following memorandum to me for an opinion:

I have the honour to request that you will be good enough to favour me with an opinion as to whether, in the event of a bank's insolvency, the Commonwealth would have a preference over other creditors in respect of Commonwealth moneys lodged with the bank on fixed deposit and current account. The matter is very important as the Commonwealth will shortly have large sums of money for investment, and if the Commonwealth has no preference, careful enquiries would have to be made as to the financial position of a bank before it could be entrusted with any considerable amount of money.

In the case of Commissioners of Taxation for the State of New South Wales v. Palmer [1907] A.C. 179, the Privy Council held that in the administration of a bankrupt's estate under the New South Wales Bankruptcy Act 1898, the Crown is entitled to preferential payment over all other creditors.

It has been held in England that in the winding up of a company, the Crown has a preferential right to payment. See In re Henley & Co. 9 Ch. D. 469.

I am of opinion, therefore, in the absence of any provision to the contrary in an Act binding on the Commonwealth, that the Commonwealth would, in the event of the insolvency of the bank, have a preference over other creditors in respect of Commonwealth moneys lodged with a bank on fixed deposit or current account.

I do not think that any State Act could take away any right of priority belonging to the Commonwealth.

[Vol. 8, p. 164]