Employee Entitlements – ░░░ INSOLVENCY INTERFACE

More talk about phoenixing of insolvent companies

Corporate Insolvency, Employee Entitlements, External administration, External administrators, Personal Bankruptcy, Phoenix company activity, Practitioners Association (ARITA), White collar crime Comments Off

Nov 122015

Transcripts have now been published for all of the public hearings of the Senate inquiry into insolvencies in construction industry. Phoenixing of companies is the main topic discussed. Several insolvency practitioners have given evidence, and at the hearing in Sydney on 28th September the insolvency profession was criticised by the leading participant, Senator Doug Cameron. At the public hearing in Melbourne on 29th September the Walton Constructions case was discussed in detail by the insolvency practitioners initially appointed as external administrators.

A list of the public hearings and those who appeared as witnesses is provided below. Continue reading »

Government funding of liquidators expanded

Assetless companies, Corporate Insolvency, Employee Entitlements, External administration, Priority Debts, Voidable transactions Comments Off

Jul 062015

(6 July 2015) From 1 July 2015 the Australian Government’s Department of Employment will accept applications from liquidators for funding under its Fair Entitlements Guarantee programme. The following is a copy of the FACT SHEET for the Fair Entitlements Guarantee Recovery Programme.

A division of the Australian Government Department of Employment

Fair Entitlements Guarantee Recovery Programme

This fact sheet provides information for liquidators about the Fair Entitlements Guarantee (FEG) Recovery Programme which aims to improve the recovery of employment entitlements advanced under FEG.

The FEG Recovery Programme

FEG provides financial assistance for unpaid employment entitlements to eligible employees who have lost their jobs due to the liquidation or bankruptcy of their employers. Once entitlements are paid under FEG, the Commonwealth stands in the shoes of the employee as a subrogated creditor and is entitled to claim in the liquidation and is given priority over other unsecured creditors under the Corporations Act 2001 (Cth).

The FEG Recovery Programme is administered by the Department of Employment (‘Department’) with the purpose of funding actions that will improve recovery of amounts advanced under FEG.

Under the FEG Recovery Programme funding may be provided to liquidators to enable recovery efforts, including legal proceedings, which the liquidators would not otherwise have the financial resources to pursue.

How to apply

Actions that the Department may consider funding include, but are not limited to:

voidable transaction claims, such as unfair preferences and uncommercial transactions;
insolvent trading claims;
transactions entered into with the intention to avoid employment entitlements; and
claims against receivers and secured creditors for failure to pay employment entitlements.

Liquidators of insolvent entities where employment entitlements have been paid under FEG can apply for funding assistance where:

they are aware of one or more claims that might be brought, on behalf of the company, against any person or persons; and
those claims have reasonable prospects of success and, if successfully prosecuted, will result in the company recovering property that will improve the return for employment entitlements.

Applications for funding assistance can be made by completing the Funding Application Form available on the FEG website and returning:

by email to: FEGRecovery@employment.gov.au
by post to: Fair Entitlements Guarantee Branch Department of Employment GPO Box 9880 CANBERRA ACT 2601

Considerations

When determining whether to provide funding, the Department will have regard to:

the merits, prospects of success and risks of the proposed action;
the complexity of the proposed action and its likely duration;
the total costs that are likely to be incurred, compared to the admitted value of the Department’s proof of debt and the scope for improved recovery;
the availability of favourable evidence;
whether the proposed defendant or defendants have sufficient assets to satisfy an adverse judgment; and
whether sufficient information has been provided, as part of the initial application or in response to a request for further information, to enable the Department to make its funding decision.

If your application is accepted, you will be required to enter into a funding agreement with the Department. The funding agreement will govern what the Department will pay for and how monies recovered are to be applied.

A draft of the funding agreement will be provided to you if your application is accepted. The Department will not be liable to pay any amounts until the funding agreement has been executed and will only provide funding in accordance with the funding agreement.

Want more information?

You can contact the FEG Hotline if you would like more information about the FEG Recovery Programme:

by phone on: 1300 135 040
by email to: FEGRecovery@employment.gov.au

If you speak a language other than English, call the Translating and Interpreting Service (TIS) on 13 14 50 for free help anytime.

Further information about FEG is also available on the FEG website (www.employment.gov.au/FEG).

The information contained in this fact sheet is not legal advice. Where necessary, you should seek your own independent legal advice relevant to your particular circumstances. The Commonwealth is not liable for any loss resulting from any action taken or reliance made by you on the information contained in this factsheet. Updated: June 2015

Compelling first day at inquiry into construction industry insolvencies

Assetless companies, Corporate Insolvency, Debt Administration, Employee Entitlements, Insolvency Statistics, Official Inquiries, Phoenix company activity, Regulation, White collar crime Comments Off

Jun 192015

(19/6/2015) A lively public hearing before the Senate Committee looking into insolvency in the Australian construction industry has been told by several speakers that sub-contractors should be protected by requiring head contractors to place money in trust funds. The Committee also heard about debt collection methods, outlaw bikie gangs and new allegations concerning events leading up to the collapse of Walton Construction in October 2013.

Those appearing before the Committee on 12 June 2015 included Mr Dave Noonan, National Secretary of the Construction and General Division, Construction, Forestry, Mining and Energy Union (CFMEU), representatives of the Subcontractors Alliance, Project Resources, Masonry Contractors Association of NSW, EcoClassic Group Pty Ltd and Erincole Building Services Pty Ltd.

MORE TO COME: At the close of the day Senator Cameron said: “Chair, there might be other issues once we have a look at the Hansard. We might need to get some of this group back again further on. This inquiry is going to run for a bit of time yet, so we will need to have a look, see what you said and come back.”

The official Hansard transcript of the hearing on 12 June 2015 was recently published on the Parliament’s website. A PDF copy of the 56 page transcript may be downloaded from that site by clicking here.

Targeting phoenix activity: union asks Senate for tougher laws and action

ASIC, Australian Senate 2013-14, Corporate Insolvency, Employee Entitlements, Official Inquiries, Phoenix company activity, Regulation, White collar crime Comments Off

Oct 252013

The Australian Manufacturing Workers’ Union (AMWU) has focused its recent submission to the inquiry by the Australian Senate into “The performance of the Australian Securities and Investments Commission” on the issue of phoenix company activity.

The AMWU claims that “ASIC’s failure to adequately hold directors to account has cost millions of dollars worth of unpaid entitlements for employees nationwide. The time is now for action to be taken, impunity to end, and for unscrupulous directors to be held accountable.”

The AMWU submission (21 October 2013) makes four recommendations, namely:

1) Increasing resources and funding to ASIC so that it can properly investigate corporate misbehaviour.

2) A comprehensive review and amendment of s 596AB of the Corporations Act to provide stronger safeguards for employee entitlements and allow for more successful actions by ASIC and liquidators.

3) Introducing a reverse onus procedure by which a director, where there has been an adverse liquidators’ report lodged against them, will be required to ensure that they have acted honestly and responsibly in relation to company affairs.

4) Increasing ASIC’s legislative powers to hold directors and officers personally responsible for unpaid employee entitlements, with a particular focus on phoenix activity.

In expanding on and explaining these recommendations the AMWU says:

1) “ASIC is under-resourced to handle the thousands of complaints submitted to it every year. Regardless of what legislative or regulatory reforms are undertaken, without additionally funding, ASIC will not be able to protect the interests of even the most vulnerable of parties, such as employees. There needs to be a commitment to replace impunity with accountability, and increased resources and funding to ASIC must be the driving force behind this.”

2) “The intention behind s 596AB was to “deter the misuse of company structures … to avoid the payment of amounts to employees that they are entitled to prove for on liquidation of their employer”. This intention has not materialised. Instead, the criticism that s 596AB will prove to be a “toothless tiger… so hard to prove that nobody will be effectively prosecuted” has been proven true. This recommendation would allow for ASIC to, more easily, bring proceedings against directors who have compromised employee entitlements through corporate restructures. This would have a threefold effect of protecting employee entitlements, holding dishonest directors to account, and deterring similar conduct.”

3) “This recommendation is modelled upon Irish legislation under the Companies Act 1990 (Ireland) s 149. In Ireland, where an adverse liquidators’ report has been lodged, directors must ensure that a large amount of equity capital is invested in the new company (at least £100 000 with a minimum of £20 000 paid up in cash) or are required to prove in court why they should not be required to do so. This reverse onus procedure would reduce the detection and compliance burden on ASIC.”

4) “The AMWU submits that continued review of the anti-phoenix activity measures implemented be undertaken, especially in light of the first anniversary of the enactment of the Corporations Amendment (Phoenixing and Other Measures) Act 2012 (Cth).”

In support of its submission the AMWU gives its summary of the following recent cases:

• Steel Tube Pipe Group
• Forgecast Australia Pty Ltd (AMWU v Beynon [2013] FCA 390)
• Carlton Sheet Metal Pty Ltd
• Huon Corporation
• Paragon Printing Ltd

The inquiry by the Senate Standing Committee on Economics began on 20 June 2013. Submissions were to close on 21 October 2013. The Committee is due to report by 31 March 2014.

ASIC invites comment on use of its new power to wind up companies

ASIC, Corporate Insolvency, Employee Entitlements, GEERS, Insolvency Laws, Insolvency practices, Regulation, White collar crime Comments Off

Jul 182012

How should the public interest test be applied?

The Australian Securities and Investments Commission (ASIC) has released a consultation paper outlining how it intends to implement its new power to wind up companies.

Recent amendments to the Corporations Act have given ASIC the power to order the wind up a company in specific circumstances and appoint a liquidator. The Corporations Amendment (Phoenixing and Other Measures) Act 2012 amends the Corporations Act to add a new part to Chapter 5 – External Administrations. The new part (Part 5.4C) – which comprises new sections 489EA, 489EB and 489EC – gives ASIC the power to wind up companies in FOUR scenarios:

SCENARIO 1:

ASIC may order a winding up if:

(a)	the response to a return of particulars given to the company is at least 6 months late; and
(b)	the company has not lodged any other documents under this Act in the last 18 months; and
(c)	ASIC has reason to believe that the company is not carrying on business; and
(d)	ASIC has reason to believe that making the order is in the public interest.

SCENARIO 2:

ASIC may order a winding up if the company’s review fee in respect of a review date has not been paid in full at least 12 months after the due date for payment.

SCENARIO 3:

ASIC may order a winding up if

(a)	ASIC has reinstated the registration of the company under subsection 601AH(1) in the last 6 months; and
(b)	ASIC has reason to believe that making the order is in the public interest.

SCENARIO 4:

ASIC may order a winding up if

(a)	ASIC has reason to believe that the company is not carrying on business; and
(b)	at least 20 business days before making the order, ASIC gives to:
	(i)	the company; and
	(ii)	each director of the company;
	a notice:
	(iii)	stating ASIC’s intention to make the order; and
	(iv)	informing the company or the director, as the case may be, that the company or the director may, within 10 business days after the receipt of the notice, give ASIC a written objection to the making of the order; and
(c)	neither the company, nor any of its directors, has given ASIC such an objection within the time limit specified in the notice.

Comments on Consultation Paper 180 are due by Friday 10 August, 2012.

Click here to download Consultation Paper 180. (PDF format.)

The following is ASIC’s media release of 12 July 2012:

ASIC today released a consultation paper outlining how it intends to implement its new power to wind up abandoned companies under the Corporations Act 2001 (Corporations Act) to facilitate greater access to the General Employee Entitlements Redundancy Scheme (GEERS).

Consultation Paper 180 ASIC’s power to wind up abandoned companies outlines how ASIC intends to exercise this new power, and how it will prioritise matters for winding up

‘When using this power, our first consideration will be if an order to wind up the company would facilitate employee access to GEERS’, Commissioner John Price said.

GEERS is a scheme funded by the Australian Government to assist employees of companies that have gone into liquidation and who are owed certain employee entitlements. However, companies are sometimes abandoned by their directors without being put into liquidation. This has previously resulted in employees of the company who are owed employee entitlements being unable to access GEERS.

Consistent with the new law, ASIC is proposing to apply a public interest test when deciding whether to wind up a company. This public interest test will consider factors like the cost of winding up, the amount of outstanding employee entitlements and how many employees are affected.

‘ASIC needs to consider the broader public interest when deciding which abandoned companies with outstanding employee entitlements will be wound up’, Mr Price said.

ASIC is proposing not to reinstate companies that have already been deregistered in order to wind them up later. Among other reasons, there are already court processes in place to facilitate the reinstatement of a company where that is needed.

ASIC intends to commence using this new power to wind up abandoned companies in the final quarter of 2012.

Comments on Consultation Paper 180 ASIC’s power to wind up abandoned companies are due by Friday 10 August, 2012.

Background

One of the measures of the Australian Government’s Protecting Workers’ Entitlements Package (announced July 2010) is to assist employees of abandoned companies to access the General Employee Entitlements and Redundancy Scheme when they are owed certain employee entitlements.

When the employer is a corporation, it must be in liquidation before GEERS can assist an employee.

Amendments to the Corporations Act have given ASIC the power to wind up an abandoned company in specific circumstances.

ASIC may appoint a registered liquidator over a company when exercising its power to wind up an abandoned company.

Employers and unions trade blows on GEERS scheme

Corporate Insolvency, Employee Entitlements, GEERS, Personal Bankruptcy Comments Off

Jul 172012

(From SCR: Supply Chain Review. July 12, 2012 – http://www.supplychainreview.com.au/news/articleid/80211.aspx )

“The General Employee Entitlements and Redundancy Scheme (GEERS) has become an industrial relations and regulatory football, two weeks after its near-death experience in the High Court.

Federal Employment and Superannuation Minister Bill Shorten fast-tracked GEERS payment to 1st Fleet employees amongst others two months ago but industry and union heads are now engaging in robust debate on the issue sparked by a recent surge in payouts.

The latest into the fray is Australian Industry Group (Ai) CEO Innes Willox, who lambasted the Australian Council of Trade Unions (ACTU) over accusations that employers were milking GEERS.

“Union assertions that the $1 billion paid out to the employees of insolvent employers under the scheme over the past decade is money taken by employers from their employees is arrant nonsense,” Willox says.

ACTU Secretary Dave Oliver, in a statement reportedly in tune with the thinking in Shorten’s office, put the issue at the door of managers.

Oliver has called for tougher penalties for company directors who breach corporations laws, including trading insolvent or failing to make superannuation contributions, saying the taxpayer should not have to pay for employer malfeasance.

“The amount of money being covered by taxpayers highlights the important role this scheme plays, but also backs up union calls for greater penalties,” he says.

“It should be the responsibility of employers to make provision for workers’ entitlements, and directors who run their companies into the ground with no funds left for workers should be punished.

“These entitlements have been earned over years of loyal service, and employers have a legal obligation to pay them.

“But all too often businesses go broke leaving nothing in the bank. Frequently, companies treat workers’ entitlements as a kind of unsecured, interest-free loan – without telling the workers and often with no intention of ever paying it back. It is left to taxpayers to come to the rescue.

“This type of behaviour must be punished through tougher penalties.”

But Willox hit back, describing the union imputation as “deserving of the strongest condemnation”.

“Under the Corporations Act, directors have a legal duty not to trade insolvently and penalties for individuals of up to $220,000 or imprisonment for up to five years apply,” Willox says.

“Directors can also become personally liable for debts incurred while the company is insolvent.”

He points out that, under the Act, to enter into an agreement or transaction with the intention of avoiding the payment of employee entitlements is an offence.

A court can order those convicted to compensate employees who have suffered loss or damage because of the agreement or transaction.

Penalties of up to $110,000 or imprisonment for up to 10 years apply.

“When companies go broke there are no winners,” Willox says.

“Often directors and business owners experience great hardship.

“Employees are in a different position; they have the GEERS scheme to prevent hardship in these unfortunate circumstances.”

He adds that Ai had warned the Government in January 2011 that increasing redundancy protection from a maximum of 16 weeks to an entitlement of up to four weeks per year of service “could create a huge budget shortfall” if even one large company with a generous redundancy scheme failed.

Second attempt at tax laws to impose director liability for employee superannuation entitlements

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Apr 202012

The Government is again proposing to extend the director penalty regime to cover employee superannuation entitlements.

The original Bill was introduced to Parliament on 13 October 2011. (I wrote about this in my blog post on 18/10/2011: see “Parliament sees new tax laws to protect superannuation and deter phoenix companies”.)

In its media release on 18 April 2012, the Government says it “held further consultation with industry after withdrawing an earlier version of the legislation in November. Following this consultation, the Government has made amendments to the draft Bill, including to ensure that new directors have time to familiarise themselves with corporate accounts before being held personally liable for corporate debts and requiring the ATO to serve director penalty notices on directors in all cases before commencing action.”

This is the full GOVERNMENT MEDIA RELEASE of 18 April 2012:

“Draft legislation released today will help to protect workers’ superannuation entitlements, said Assistant Treasurer, David Bradbury.

Under the director penalty regime, which has been in operation since 1993, company directors are personally liable for amounts withheld by their company that have not been remitted to the Australian Taxation Office (ATO). The Tax Laws Amendment (2012 Measures No. 2) Bill 2012: Companies’ non-compliance with PAYG withholding and superannuation guarantee obligations will extend the regime to cover Superannuation Guarantee amounts.

As well as strengthening directors’ obligations to arrange for their companies to meet Pay As You Go (PAYG) withholding and superannuation obligations, the measure will also help counter phoenix behaviour.

“The Gillard Government is committed to protecting workers’ entitlements,” said Mr Bradbury.

“This legislation makes it clear that directors have an obligation to ensure that provision is made for the ongoing payment of workers’ superannuation.

“It also ensures that fraudulent directors who use phoenix companies to try and avoid their debts will be held personally liable for their PAYG withholding and superannuation obligations.”

The Government held further consultation with industry after withdrawing an earlier version of the legislation in November. Following this consultation, the Government has made amendments to the draft Bill, including to ensure that new directors have time to familiarise themselves with corporate accounts before being held personally liable for corporate debts and requiring the ATO to serve director penalty notices on directors in all cases before commencing action.

The draft legislation also includes a new defence for directors liable to penalties for superannuation debts where, broadly, they reasonably thought the worker was a contractor and not an employee,” he said.

“The measure strikes the appropriate balance between protecting workers’ entitlements while not discouraging people from becoming company directors.”

The Government looks forward to receiving submissions from the public about this important reform. Submissions close on 2 May 2012 to allow for the introduction and passage of the legislation in the Winter 2012 sittings of Parliament.

The draft legislation, explanatory memorandum, and a summary of the policy changes can be found on the Treasury website.

CANBERRA 18 April 2012″

Click on the following link to go to THE TREASURY WEBSITE LOCATION WHERE DETAILS WILL BE FOUND. The closing date for submissions regarding the proposed legislation is 2 May 2012.

End

Draft laws released on director liability for unpaid super

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Jul 142011

Draft Australian tax laws intended “to better protect workers’ entitlements to superannuation, strengthen director obligations and enhance deterrence of fraudulent phoenix activity” were released on 5 July 2011 for public consultation. Treasury states that:

” The main aspects of these amendments involve:

extending the director penalty regime beyond its current application to Pay As You Go (PAYG) withholding to make directors personally liable for their company’s unpaid superannuation guarantee amounts;
allowing the Commissioner of Taxation (the Commissioner) to immediately commence recovery of all director penalties when the company’s unpaid liability remains unpaid and unreported three months after the due day, regardless of the character of the company’s underlying liability; and
providing the Commissioner with the discretion to prevent directors and, in some instances their associates, from obtaining PAYG withholding credits where the company has failed to pay amounts withheld to the Commissioner.”

To see the Explanatory Memorandum and/or the Exposure Draft Legislation CLICK HERE.

Closing date for submissions: Monday, 1 August 2011

I intend to write more about this soon.

$154 million used under GEERS to pay employee entitlements.

Employee Entitlements, GEERS, Priority Debts Comments Off

Nov 092010

An annual report recently tabled in Parliament reveals that under the Australian Government’s “safety net” scheme over $154 million had to be paid out in 2009/10 to compensate 15,565 Australian workers who lost their jobs as a result of their employers’ insolvency.

This $154 million takes the total paid since the scheme began in 2001 to about $1,083 million.

The Department of Education, Employment and Workplace Relations (DEEWR) runs a scheme called the General Employee Entitlements and Redundancy Scheme (GEERS). The scheme is officially described as follows:

“GEERS is a safety net scheme which protects the entitlements of employees who have lost their jobs as a result of the bankruptcy or liquidation of their employers. Eligible entitlements under GEERS consist of up to three months unpaid or underpaid wages for the period prior to the appointment of the insolvency practitioner (including amounts deducted from wages, such as for superannuation, but not passed on to the superannuation fund), all unpaid annual leave, all unpaid long service leave, up to a maximum of five weeks unpaid payment in lieu of notice and up to a maximum of 16 weeks unpaid redundancy entitlement. Payments made under GEERS are subject to an annually indexed income cap, which was $108,300 for 2009–10.”

In its 2009/10 Annual Report the department lists the “notable achievements” of GEERS as:

“A total of $154,058,670 was advanced under GEERS to 15,565 eligible claimants. Of claimants who received assistance under GEERS, 87.3 per cent were paid 100 per cent of their verified employee entitlements by GEERS. More than 45,632 enquiries were received by the GEERS Hotline. Over $18 million advanced under GEERS was recovered during 2009–10.”

Note: After a payment is made from GEERS, the Government seeks to recover the payment through the liquidation or bankruptcy process (as a priority debt). As stated, the amount recovered in this way was $18 million, which apparently means that the net outlay of taxpayers’ money was $136 million.

GEERS was introduced in 2001. The following chart – prepared for this article using figures extracted from past DEEWR annual reports, and an article in the Australian Journal of Management (June 2009, pages 51-72, authors Jeannette Anderson and Kevin Davis) – shows amounts paid out over past years:

——————————————————————————————————————

Fair Entitlements Guarantee Recovery Programme

The FEG Recovery Programme

How to apply

Considerations

Want more information?

How should the public interest test be applied?

” The main aspects of these amendments involve:

extending the director penalty regime beyond its current application to Pay As You Go (PAYG) withholding to make directors personally liable for their company’s unpaid superannuation guarantee amounts;

allowing the Commissioner of Taxation (the Commissioner) to immediately commence recovery of all director penalties when the company’s unpaid liability remains unpaid and unreported three months after the due day, regardless of the character of the company’s underlying liability; and

providing the Commissioner with the discretion to prevent directors and, in some instances their associates, from obtaining PAYG withholding credits where the company has failed to pay amounts withheld to the Commissioner.”

The comments and materials contained on this blog are for general information purposes only and are subject to the disclaimer.