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22 Mar 2013

FEG Casts Safety Net for Employees in DOCA and PIA Times

The Fair Entitlements Guarantee Act 2012 (FEG) was introduced to replace the Government’s General Employee Entitlements Redundancy Scheme (GEERS).

In our previous article Fair Entitlement Regime – Now in Place we outlined the differences and benefits available under FEG as compared to GEERS. There is one major point of difference between GEERS an FEG which we think has been seemingly underplayed.

Under FEG an employee’s ability to claim outstanding entitlements will continue if their employer enters into a Deed of Company Arrangement (DOCA) or Personal Insolvency Agreement (PIA) if the employer subsequently goes into liquidation or bankruptcy. This was largely not the case under GEERS. What this means in dollar terms is yet to be realised, however it appears that employees have been granted a greater security as creditors in such agreements.

Simply put:

Under GEERS employees who were creditors to their employer needed to consider very carefully whether to give their support, by way of vote, to approve a proposed DOCA or PIA. If they did it may have meant that they could have inadvertently excluded themselves from making a claim through the GEERS scheme.

Before this change many incipient DOCA’s and PIA’s never got off the ground as insolvency practitioners were unable to recommend proposals which stripped employees of their safety net. In the future it is possible that we will see an increase in these types of arrangements, which is likely to be a plus for creditors.

In contacting Department of Education, Employment and Workplace Relations we asked for clarification on this point:

“Under both GEERS and FEG a person may only be eligible for assistance if their employment has been terminated and an insolvency event has happened to their former employer. For the purpose of GEERS and FEG, an insolvency event happens to an employer when a liquidator is appointed or the employer becomes bankrupt.

Under GEERS, where a Deed of Company Arrangement (DOCA) or personal insolvency agreement is entered into within 12 months of the insolvency event, a person is not eligible for assistance unless the DOCA or personal insolvency agreement meets certain conditions. These conditions are set out in clause 16(f) of the GEERS Operational Arrangements, 1 January 2011. Under FEG, provided an insolvency event has happened to their former employer and subject to other conditions of eligibility, a person is not excluded from eligibility due to the fact that a DOCA or personal insolvency agreement preceded the insolvency event.”

With any policy change, the impact is yet to be seen. We will be watching for the emergence of a new trend and the Federal Governments spend on these entitlements.

FEG will operate in relation to insolvency events that occur from 5 December 2012.

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