Day 165 Payment priority after winding up

Payment priority after winding up 

As we know, the liquidator will distribute the surplus assets to shareholders after the winding up process of the company. However, this amount is limited, so obviously not all classes would be treated equally on this allocation. The section 556 Corporations Act sets out the detailed priority list on the payments. 

The section stated: in the winding up of a company, the following debts and claims must be paid in priority to all other unsecured debts and claims. First of all, all secured creditors should be paid for their debts. Generally, the secured creditors would appoint an independent practitioner referred as ‘ receiver’, in order to take procession on the secured property. Hence the proceeds would cover the unpaid debt owned by the company. After the secured creditors, the relative expenses of winding up process need to be covered next. For instance, the application of the court winding up order, the amount to indemnify the administrator/liquidator under S.443D, and the deferred expenses such as liquidator’s remuneration should be paid in this order. Besides that, the liquidator needs to pay wages and superannuation rendered before the relevant date. Examples like accrued wages should be cleared after the following transactions. Moreover, the S.556 (1)(g) regulates that the amounts due in respect of leave or absence ought to be reimbursed next. This section has a restriction attached to it, which only recreation leave 1500 payable would be applicable. Furthermore, the liquidation would pay out the retrenchment payments payable to all employees. The last two items are the unsecured creditor and the shareholders. As these two always have the lowest claim for company’s surplus assets. 

The S.556 explained the process of asset distribution on company winding up in an concise manner. Hence we should be able to comprehend this priority list as the most important issue in the company’s liquidation.