Liquidators – let employees know about their rights to claim on FEG?

Mr Merante was an employee of a company for 15 years, from 2000 until shortly after it went into voluntary administration and then liquidation, on 22 June 2015. He missed out by 2 days on making a claim under the Fair Entitlements Guarantee scheme for his unpaid entitlements as an employee.

Nothing could be done.

Read on.  

The appointment of the liquidators was an “insolvency event” for the purposes of the Fair Entitlements Guarantee Act 2012 (FEG Act). Under s 14(2) of the FEG Act, Mr Merante had 12 months to lodge his FEG claim, for unpaid annual leave, payment in lieu of notice, redundancy and long service leave entitlements.

He did not apply to FEG until 24 June 2016, two days after the 12 months period had ended. 

Neither FEG nor the AAT had power to extend time for those 2 days.  The AAT was obliged the dismiss the application.

As the AAT explained, if a period of time is expressed to begin from a specified day, it does not include that day: Acts Interpretation Act 1901; s 36(1), Item 6. Therefore, the day from which a claim had to be made here is calculated from 23 June 2015, the day after the appointment of the liquidators; the period of 12 months ended on 22 June 2016.

One argument of Mr Merante was that he thought all along that the liquidators would make the claim under the FEG Act for him. But nothing in the correspondence from the liquidators said that. In fact, the liquidators’ letter

“did not make any reference to the FEG Act. Beyond setting out the type and amount of his employee entitlements, the letter did not make any reference to whether Mr Merante would recover any of the money that he was owed. The liquidators said that they would realise the assets of EIVPL and distribute it in the order of priority required by s 556 of the Corporations Act. Enclosed with the letter was a Proof of Debt Form which the liquidators asked him to complete and return to record his claim against EIVPL”.

The AAT continued:

The Proof of Debt Form related to the liquidators’ duty to assess outstanding debts and to pay them in the order of priority set out in the Corporations Act. That is a matter quite separate from the FEG Act and it is most unfortunate that Mr Merante did not realise at the outset that this was so. It is not the fault of the liquidators that he did not do so but it is understandable that he might not realise that an employee’s seeking to recover employee entitlements as a debtor in a liquidation is a different matter from an employee’s seeking an advance when not paid those employee entitlements.

The AAT concluded in saying that

“the provisions of the FEG Act and of the Corporations Act might well appear to be an impenetrable thicket to many”.

See  Merante and Secretary, Department of Employment [2017] AATA 1178.

Comments

Three comments are made.

First, give the emphasis given in the new insolvency laws to the rights of creditors and the need to keep them informed, it is odd that there is no particular obligation to inform employee creditors of their rights, including to make claims on the Commonwealth FEG scheme: see ss 70-30, 70-40, Corporations Rules.  

It would be wise for insolvency practitioners to include in their initial report to creditors, that any employee may need to make a claim on FEG. Although the liquidators were not criticized in this case, a professional standard might properly require that any reference to employee issues should be all encompassing.  Creditors can’t know what they don’t know to ask. Guidance is being updated in the Australian Insolvency Management Practice.

Second, as to the law, practitioners are to have regard to the interests of creditors and this can extend beyond the statutory requirements in any particular case.

This is illustrated by the old English case of Pulsford v Devenish, [1903] 2 Ch 625, in which the Judge said that a liquidator, in advertising for proofs of debt, is

“not merely to advertise for creditors, but to write to the creditors of which existence he knows, and who do not send in claims, and ask them if they have any claim”.

A review of current case law is found in Jones v Hirst [2013] NSWSC 163. Turning a benign blind eye, even though in strict compliance with the statute law, is not enough.

Third, it is valid to ask why the law does not allow an extension of time to be given at all.  Section 38 of the FEG Act allows a person to apply for a review of FEG’s decision about their entitlements within 28 days of the decision, “or such longer time as the Secretary allows”. But no similar wording appears in s 14 of the Act.  The Explanatory Memorandum does not assist. The long period of time allowed, 12 months, may be the explanation.

 

 

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