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.

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Employers and unions trade blows on GEERS scheme

 Corporate Insolvency, Employee Entitlements, GEERS, Personal Bankruptcy  Comments Off on Employers and unions trade blows on GEERS scheme
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.

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$154 million used under GEERS to pay employee entitlements.

 Employee Entitlements, GEERS, Priority Debts  Comments Off on $154 million used under GEERS to pay employee entitlements.
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:

 

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