McGrath v Sturesteps

The case of *McGrath v Sturesteps* involved an appeal and cross-appeal concerning a dispute over employee entitlements in the context of a company's winding up. The respondent, Mr. Sturesteps, was a former employee of the third appellant, a company in liquidation. The appellants, who were the liquidators, disputed the calculation and priority of Mr. Sturesteps' claims for unpaid wages, superannuation, annual leave, long service leave, and a retrenchment payment. The primary judge had made certain orders regarding these claims, which were the subject of the appeal.

The central legal issues before the Court of Appeal were the proper construction of the employment contract, particularly regarding redundancy provisions and the identification of the employer, and the correct calculation and attribution of employee entitlements for the purposes of priority under section 556 of the *Corporations Act 2001* (Cth). Specifically, the court had to determine whether accrued leave should be attributed to periods when the employee was also a director, whether the rule in Clayton's case applied to the accrual of annual leave, and how retrenchment payments should be attributed when termination occurred on a "priority day" but included entitlements for "non-priority days." The court also considered whether a liquidator had the power to pay post-liquidation interest outside the provisions of section 563B of the *Corporations Act 2001*.

The Court of Appeal allowed the appeal and dismissed the cross-appeal. The court reasoned that the primary judge had erred in certain calculations and attributions of entitlements. The court clarified that for the purposes of section 556 of the *Corporations Act 2001*, accrued leave and retrenchment payments should be calculated and attributed in a manner that recognised the employee's entitlements. The court found that the rule in Clayton's case was not applicable to the accrual of annual leave. Furthermore, the court determined that the liquidators did not have the power to pay post-liquidation interest other than in accordance with section 563B.

Consequently, the Court of Appeal set aside the orders of the primary judge and made new orders. These orders admitted Mr. Sturesteps to proof for specific amounts as priority claims under section 556 of the *Corporations Act 2001*, including unpaid wages, superannuation, accrued annual leave, accrued long service leave, and the retrenchment payment. The court also admitted his claim for further amounts of annual leave, long service leave, and retrenchment payment as an ordinary unsecured creditor. The respondent was ordered to pay the appellants' costs of the appeal and cross-appeal.