The Corporations Act puts some limitations on the priority of directors’ entitlements on a winding up…
On the winding up of a company, directors and their spouses or relatives are entitled to be paid:
- wages and superannuation; and
- annual leave and long service leave.
However, the priority of their claim is restricted under the Corporations Act 2001 (Cth) (the Act).
The restriction arises because directors, their spouses, and their relatives are considered “excluded employees” in accordance with section 556(2) of the Act. Excluded employees do not enjoy priority to the same extent as other employees.
In respect of wages and superannuation, each excluded employee can receive a maximum priority payment of $2,000, with any excess amount treated as “other unsecured debts and claims”. This means that if they are owed $5,000 in unpaid wages, the remaining $3,000 will not be paid until all other priority payments and secured debts have been paid.
In respect of annual and long service leave, an excluded employee’s claim in priority is limited to a claim of up to $1,500 for both entitlements, with any excess being treated as an unsecured debt.
Each of these payments will only be paid once the higher ranking priority amounts have been paid – these include amounts such as the liquidator’s expenses and the costs of obtaining a winding-up order for the company.
