How the government scheme may assist.
Employee entitlements are an important consideration in insolvency appointments as they have a high impact on the lives of people who have lost their jobs due to their employers’ bankruptcy or the company’s liquidation. These entitlements are governed by various laws, including the Corporations Act 2001, the Bankruptcy Act 1966 and the Fair Entitlements Guarantee Act 2012 (FEG). The Corporations Act and Bankruptcy Act outline the employees’ rights and priorities in insolvency situations and FEG provides a framework for addressing employees’ outstanding entitlements.
FEG operates for claims arising from employer insolvencies on or after 5 December 2012[1].
While legislation provides for employee entitlements to receive priority in any distribution of assets in both corporate insolvency and personal insolvency situations, this priority only benefits employees if there are sufficient recoveries made to enable entitlements to be paid.
What does FEG cover?
Where insufficient assets are available to pay employee entitlements, FEG can assist employees of insolvent employers to ensure they receive at least some of their entitlements. The scheme covers the following claims:
up to a maximum of 13 weeks unpaid wages for the period prior to the insolvency practitioner being appointed
unpaid annual leave
unpaid long service leave
up to a maximum of five weeks unpaid payment in lieu of notice
up to a maximum of four weeks unpaid redundancy entitlement for each completed year of service.
However, FEG does not cover any unpaid superannuation.
Who is eligible for FEG?
To be eligible for FEG assistance, an employee must:
lodge an effective claim within 12 months of the date of the liquidation or bankruptcy of their former employer
have lost their job due to the insolvency of their employer or were terminated after, or within six months before, the appointment of a liquidator or bankruptcy trustee
be owed at least one of the entitlements mentioned above
be an Australian citizen or hold a permanent visa or special category visa that allows them to stay and work in Australia, when their employment ended.
Some associated individuals are excluded from claiming under FEG. In a liquidation, excluded employees include company directors, their spouses (including de facto partners) and their relatives, where the person was a company director (or spouse or relative of a company director) within the 12-month period prior to the day when the winding up commenced.
Claiming under FEG
Claiming under FEG involves demonstrating employment status and providing supporting documentation, such as employment contracts and payslips. Insolvency practitioners review and verify these claims against the employer’s books and records and liaises with the Department of Employment and Workplace Relations (DEWR) that pays eligible employees.
Once DEWR pays entitlements to former employees, the department is entitled to subrogate as a creditor (with the same priority protection) in the relevant insolvency administration.
Priority employee claims
In a liquidation, employee entitlements take priority over other unsecured creditors. Wages, superannuation contributions, and any superannuation guarantee charge (SGC) receive the highest priority, followed by leave entitlements and retrenchment payments.
In bankruptcy, employee claims are also prioritised, albeit with different limits and conditions. Wages, superannuation, and other amounts due are prioritised up to a limited amount. Injury compensation and leave entitlements have no limitation. Any remaining amount after the priority provisions can be claimed as a non-priority debt.
Excluded employees, have limits on the priority amounts they can claim in respect of entitlements with the balance of their claims being non-priority debts, claimed alongside other unsecured creditors.
Should any of your clients have queries about FEG eligibility, please contact your local Worrells Principal. Our knowledge base also outlines the key monetary thresholds click here.
[1] FEG replaces General Employee Entitlements and Redundancy Scheme (GEERS)
