Improving Security of Payment Building and Construction Industry

More documents

Recommendations

Info

7. Priority Payments Page 91National Public Works Council IncImproving Security of Payment in the Building and Construction IndustryA response which may redress some of the security of payment problems which has not beencanvassed to any great extent in past studies is the proposition that a priority to payment begranted to Subcontractors in the event of the insolvency of a Head Contractor. The grantingof a priority could be achieved by amending Sections 556 and 433 of the Corporations Lawand Section 109 of the Bankruptcy Act, which grant priority to employees in insolvencyadministration.7.3 The Nature of the Priority for EmployeesSection 556 of the Corporations Law is the statutory scheme which provides priority tocertain creditors specifically covered therein who obtain a priority ahead of other unsecuredcreditors of a corporation under an insolvency administration.Discussions regarding priority under Section 556 should also include Section 433 of theCorporations Law and Section 109 of the Bankruptcy Act 1966. Section 433 embodies theprovisions contained within Section 556 relating to employees where there is a floatingcharge in existence and a corporation is placed into some form of controllership position.Section 109 of the Bankruptcy Act applies to the position of priorities of creditors withrespect to the bankruptcy of a natural person. However, for the purposes of this Consultancy,discussion will only centre around Section 556 as the principle of affording priority toSubcontractors in the event of a Head Contractor's liquidation, will equally apply to any formof formal insolvency administration and bankruptcy.Pursuant to Section 556 and 433 of the Corporations Law ("the Law") and Section 109 of theBankruptcy Act ("the Act") employees are generally entitled to receive priority to repaymentin an insolvency context to monies that they are owed for performance of their duties asemployees.Section 556(2) of the Law describes an employee as"a person (a) who has been or is an employee of the company, whetherremunerated by salary, wages, commission or otherwise; and (b) whoseemployment by the company commenced before the relevant date."There is no limit on the amount of the priority allowed in respect of wages, superannuationcontributions, injury compensation, leave of absence and retrenchment payments for ordinaryemployees.
7. Priority Payments Page 92National Public Works Council IncImproving Security of Payment in the Building and Construction IndustryThere is a $2,000 limit on wages and $1,500 on leave of absence for excluded employees as apriority claim. Excluded employees essentially comprise directors of insolvent companies,their spouses and relatives. There is no limit on wages or leave of absence as an unsecuredclaim for excluded employees.7.4 Employees and SubcontractorsIt is the nature of the Building and Construction Industry that many parties involved with theHead Contractor may be legally Subcontractors rather than employees of the HeadContractor, whereas the commercial nature of the relationship with the Head Contractor ismore closely aligned to that of employee/employer.One of the dominating circumstances in determining whether or not a person is for all intentsand purposes an employee has rested in case law on the evidence of supervision and controlof the "employer" over the person, and whether the person has been required to observe thesame working rules as other employees. It must be established that the particular relationshipbetween the person and the insolvent entity is that of "employer and employee". Therelationship must be a "contract of service" (an employee) as distinct from a "contract forservice" (a Contractor). Therefore, theoretically, it is possible to be an independentContractor and be classified as an employee.As neither the Corporations Law nor the Bankruptcy Act provides a definition for anemployee we must therefore turn to common law to determine who is an "employee".In Readymix Concrete (South East) Limited v The Minister of Pensions and NationalInsurance (1968) QB 497 McKenna J stated that a contract of service (ie an employee) existsif the following three conditions are fulfilled:(i)(ii)(iii)The servant agrees that, in consideration of a wage or other remuneration, he willprovide his own work and skill in performance of some service for his master;He agrees, expressly or impliedly, that in the performance of that service he will besubject to the other's control in a sufficient degree to make the other his master; andThe other provisions of the contract are consistent with its being a contract ofservice.The second condition above states the concept of control which has been the traditional testapplied in both English and early Australian decisions in determining for all intents andpurposes that a person is an employee, no matter what pretexts that person had as his status.This concept of control was evidenced by Latham CJ in FC of T v J Walter Thompson(Australia) Pty Limited (1944) 69 CLR 227 where he said:"The distinction between a servant and an independent Contractor is generallyexplained by stating that in a case of a servant the employer has power, not only todirect what work the servant is to do, but also to direct the manner in which thework is to be done".
Page 2 and 3:
Table of ContentsNational Public Wo
Page 4 and 5:
1. Executive Summary Page 1National
Page 6:
Page 9 and 10:
Page 11:
Page 14 and 15:
1. Executive Summary Page 11Nationa
Page 16 and 17:
Page 18 and 19:
Page 20 and 21:
Page 22 and 23:
2. Introduction Page 19National Pub
Page 24 and 25:
2. Introduction Page 21National Pub
Page 26 and 27:
3. Objectives of the Consultancy Pa
Page 28 and 29:
4. Trusts Page 25National Public Wo
Page 30 and 31:
Page 32 and 33:
Page 34 and 35:
Page 36 and 37:
Page 38 and 39:
Page 40 and 41:
Page 42 and 43:
Page 44 and 45: 4. Trusts Page 41National Public Wo
Page 58 and 59: 5. Proof of Payment Page 55National
Page 84 and 85: 6. Prompt Payment Legislation Page
Page 92 and 93: 7. Priority Payments Page 89Nationa
Page 100 and 101: 8. Insurance Page 97National Public
Page 102 and 103: 8. Insurance Page 99National Public
Page 104 and 105: 8. Insurance Page 101National Publi
Page 110 and 111: 9. Mutual Fund Insurance Page 107Na
Page 118 and 119: 10. Prequalification Page 115Nation
Page 136: 10. Prequalification Page 133Nation
show all

Improving Security of Payment Building and Construction Industry

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?