Tang v Arc Attack Engineering Pty Ltd

In the matter of Tang v Arc Attack Engineering Pty Ltd, the Court was tasked with determining whether an agreement between a former administrator and a liquidator concerning the remuneration for the former administrator's services could effectively displace or vary the priority of payments of debts as prescribed under section 556 of the Corporations Act 2001 (Cth). The respondent, Arc Attack Engineering Pty Ltd, was in external administration, with the former administrator and the liquidator reaching an agreement on the remuneration to be paid to the former administrator. This agreement also provided for the costs of the proceedings to be covered by the company's funds. The legal issues before the Court were whether such an agreement could lawfully alter the statutory priority of payments of debts and if the costs of the proceedings could be paid from the company's funds.

The Court considered the statutory framework under the Corporations Act, specifically focusing on section 556 which sets out the hierarchy of payments in external administration. The Court examined the interplay between the statutory provisions and the agreement between the former administrator and the liquidator. The Court concluded that the agreement could not displace or vary the statutory priority of payments of debts. The statutory priority is designed to ensure certain creditors, particularly employees, receive their entitlements before other creditors, and altering this priority would undermine the legislative intent. Furthermore, the Court held that the costs of the proceedings should not be paid out of the company's funds as per the agreement, as it contravened the statutory priority of payments.

Following its reasoning, the Court determined that the agreement was not valid in altering the priority of payments of debts. The statutory priority as prescribed under section 556 of the Corporations Act remained intact. Consequently, the former administrator's remuneration could not be paid in a manner that conflicted with the statutory hierarchy. The Court ordered that the agreement between the former administrator and the liquidator was null and void to the extent it attempted to vary the priority of payments of debts. Additionally, the Court ruled that the costs of the proceedings were not to be paid from the company's funds in accordance with the agreement, reinforcing the statutory priority of payments.