Voluntary Administration: What About The Employee?

Voluntary Administration: What About The Employee?

In the instance of a company going bankrupt, insolvent or into receivership, what are the rights of an employee?

The Australian Government protects employees through the implementation of regulation and legislation such as the Corporations Act 2001, as well as through schemes such as the General Employee Entitlements and Redundancy Scheme (GEERS).   GEERS is a basic payment scheme established to assist employees who have lost employment due to the insolvency, and are owed employee entitlements.  Under the GEERS scheme, assistance may be available for employees with claims including wages, leave, long service entitlements and redundancy payments.

Presently, employee entitlements for unpaid wages, superannuation contributions, long service leave and retrenchment payments are treated with priority, except for debts that are secured by a fixed charge.  Employee rights are given special protections that are governed by the Corporations Act 2001 “the Act”).  The Act directs appropriate actions to maximise the chances of a company continuing in existence or guiding action that would promote greater outcomes for creditors and members than just ‘winding up a company’.

The advantages of a business entering into voluntary administration are:

  • allows immediate action to be taken and sets a fixed time frame for dealing with the issues;
  • control of the company is given to an independent person;
  • prevents unsecured creditors, owners and lessors of property from taking  action which may adversely affect the value of the business and assets;
  • allows a company and its creditors to consider the merits of a compromise arrangement which may maximise the return to creditors; and
  • enables Directors in certain circumstances to avoid personal liability for company debts except for debts that have been personally guaranteed.

When a Voluntary Administrator takes control of a company, a report is prepared for creditors with insight into the company’s business, property and financial circumstances, including an outline of possible measures to be taken.  These are typically the options of returning the company to usual trade, arrangements for business debts to be paid in full or in part to alleviate future debt claims, or the winding up of a business through the appointment of a liquidator.

If action to wind up a business is adopted, priority is then given to company creditors including employees.  Employee benefits are paid in the order of:

1)         outstanding wages and superannuation;

2)         outstanding leave of absence; and

3)         retrenchment pay.

Each entitlement category is paid in full before the next is addressed.

What to do if your employer enters into voluntary administration?

As an employee, it is important to know that you have rights, and you are provided for under law.

Your best option is to always seek advice from your local solicitor at Affinity Lawyers and be fully informed!