Mid-Pacific Construction Co. Inc, In re [1988] SPLawRp 37; [1988] SPLR 70 (7 March 1988)

[1988] SPLR 70

IN THE SUPREME COURT

TRIAL DIVISION (PON)

IN MID-PACIFIC CONSTRUCTION CO. INC.

King C.J.
7 March 1988

Equity — creditors' remedies in absence of statutory priority — whether court has power to establish priorities of judgment creditors in absence of insolvency statute. Creditors' remedies — government lien under statute — wage and salary withholding tax.

Employment — workers and labourers — whether employees of insolvent employer have superior equity to other creditors.

Creditors' remedies — whether execution creditors should be in more favourable position than mere judgment creditor.

Creditors' remedies — where execution creditors have priority over judgment creditors, whether execution creditors should explore all alternatives before attaching assets. Employment — priority to employees of insolvent creditor — labourers and wage-earners — whether senior officers, such as secretary-treasurer, are entitled to similar priority.

Facts:

More than fifteen judgment and execution creditors, including the national government of the Federal States of Micronesia (F.S.M.), sought execution of judgment debts against Mid-Pacific Construction Company, an insolvent or functionally bankrupt corporation. With the exception of a statute establishing a priority for the Government respecting withholding, or "pay-as-you-earn", taxes on salaries and wages already paid out to employees, there is no bankruptcy code in the law of the F.S.M., and the Court is obliged to fashion priorities from first principles of equity. The claimants include: the Government, re wages and salaries withholding tax; the Government's gross revenue tax; the Social Security Board, re employer's and employees' contributions; migrant Filipino labourers, statutorily barred from alternative employment in the F.S.M., and entitled to funds for air transport home; judgment creditors who had executed writs of attachment against assets of Mid-Pacific; salaried officers of Mid-Pacific, and other judgment and execution creditors.

HELD:

The Court shall first apply the statutory liens favouring the Government, and then apply equitable principles, not to overcome specific legal injustice but rather to supply the incomplete aspects of creditors' remedies:

(1) The first priority shall be the Government for its unpaid wage and salary taxes.
(2) The second priority shall be labouring (not managerial) employees of the company.
(3) The third priority shall be gross revenue tax claims of the Government.
(4) The fourth priority shall be execution creditors who attached assets of the debtor.
(5) The fifth priority shall be other execution creditors.
(6) The sixth priority shall be all other judgment creditors.