The Fair Entitlements Guarantee Act 2012 (Cth) requires the Commonwealth Government to pay outstanding superannuation, annual leave, redundancy and wages entitlements for eligible employees who have lost their jobs due to the liquidation or bankruptcy of their employers. It is generally recognised as an important safety net for employees, so that their superannuation is guaranteed.
Once entitlements are paid under the Fair Entitlements Guarantee (FEG), the Commonwealth has the subrogated right to claim as a priority creditor in the liquidation by, in effect, standing in the shoes of the employees.
The FEG scheme has been available to eligible employees whose employer has gone into liquidation or bankruptcy since December 2012. However, on 1 July 2015, the Commonwealth announced the commencement of a new aspect of that scheme: the Fair Entitlements Guarantee Recovery Programme. This new scheme is aimed at strengthening recovery activity of amounts advanced under the FEG scheme.
FAIR ENTITLEMENTS GUARANTEE RECOVERY PROGRAMME
Under the FEG Recovery Programme, the liquidators of companies in respect of which FEG advances have been provided may apply for litigation funding for:
- the purposes of pursuing recovery proceedings; and
- other activities that would increase the pool of assets available to creditors in the winding up of the company.
Under the FEG Recovery Programme, funding may be provided to liquidators to fund recovery efforts, including legal proceedings, which the liquidators are not otherwise funded to pursue. Up to $11.5 million will be provided by the Commonwealth under the FEG Recovery Programme over the next two year period. The FEG Recovery Programme is administered by the Department of Employment (Department).
Liquidators of insolvent companies may apply for funding where:
- FEG financial assistance has been paid to eligible employees;
- the liquidators are aware of claims that may be brought on behalf of the company; and
- such claims have reasonable prospects of success and if successfully prosecuted would result in the company recovering property that will improve the return for creditors.
Actions that may be considered for funding include:
- 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.
If an application is accepted, the liquidator will be required to enter into a funding agreement with the Department, that stipulates what the Department will pay for and how recovered monies will be applied.
In determining whether FEG Recovery Programme funding will be provided, the Department will have regard to:
- the merits, prospects and risks of the proposed action;
- the complexity and likely duration of the proposed action;
- the total cost of the proposed action compared with Department's scope for recovery;
- the availability of favourable evidence;
- whether any judgement debt would be able to be paid; and
- whether sufficient information has been provided to enable the Department to make its funding decision.
It is not unusual for claims against the Commissioner of Taxation for payments believed to be unfair preference payments. The FEG Recovery Program raises the interesting prospect of recovery action against the Commissioner of Taxation being funded by the Commonwealth Government.