Following the government’s public consultation process on the Reforms to address corporate misuse of the Fair Entitlements scheme consultation paper in 2017, an exposure draft of legislative amendments to the Corporations Act 2001 has now been released for public consultation at https://treasury.gov.au/consultation/c2018-t297751.
The consultation closes on 9 July 2018.
These reforms were in fact recommended as far back as 2004, but were rejected.
According to the government …
According to the government, through Treasury, the Bill, if it becomes law, would strengthen
“enforcement and recovery options to deter inappropriate market behaviours that avoid the payment of employment entitlements and improperly shifts some or all of these avoided costs onto the government funded Fair Entitlements Guarantee (FEG) scheme. The Bill also introduces new provisions that [would] facilitate disqualification of company directors and officers with a track-record of insolvencies where FEG is repeatedly relied upon”.
The exposure draft includes amendments to, as explained by Treasury:
· strengthen civil recovery action, plus criminal and civil penalties available against company directors and other persons, who engage in transactions that are directed at preventing, avoiding or reducing employer liability for employee entitlements;
· ensure recovery of outstanding employee entitlements of an insolvent corporate group member, where it would be just and equitable and where other entities in the group have benefited from the work done by the insolvent entity’s employees; and
· strengthen the ability to sanction directors and company officers with a track record of insolvencies where FEG is repeatedly relied upon.
Treasury and the Department of Jobs and Small Business are holding roundtable discussions with stakeholders across three capital cities on the following dates in the morning and the afternoon. For those interested, the details are:
• Sydney – 18 June 2018
• Melbourne – 21 June 2018
• Brisbane – 22 June 2018
The purpose of the roundtable discussions is said to “further refine and develop the reforms outlined in the Bill and maximise their efficacy in safeguarding Australians’ employee entitlements”.
These are said to be confidential discussions.
In considering this reform, readers might like to know some background, usefully given by Professor Helen Anderson and her team in her third and final 2017 report on phoenix misconduct.
Professor Helen Anderson
In relation to Part 5.8A of the Corporations Act, Anderson said that
“amendment of the never-used criminal provisions to protect employee entitlements is well overdue”.
Part 5.8A was introduced into the law by the Corporations Law Amendment (Employee Entitlements) Act 2000. Section 596AB(1) presently states that a person must not enter into a relevant agreement or a transaction with the intention of preventing the recovery of the entitlements of employees of a company; or significantly reducing the amount of those entitlements that can be recovered [emphasis added].
That 2000 Act was no doubt introduced with the same fanfare as this one, in 2018. In 2000, the government said that it
“is serious about protecting employee entitlements and assisting employees who have been short-changed by their employer. This bill will help prevent corporate employers from avoiding their obligations to their employees and will provide employees with greater confidence that the entitlements they earn will be paid to them”.
According to the 2000 Act’s Explanatory Memorandum, the object of s 596AB was ‘to deter the misuse of company structures and of other schemes to avoid the payment of amounts to employees that they are entitled to prove for on liquidation of their employer’.
But the section has never been used in a criminal action, most likely, as Professor Anderson says, because of the section’s requirement of intention, proved subjectively to the criminal standard of ‘beyond reasonable doubt’.
Professor Christopher Symes
Back in 2002, another eminent academic, Professor Christopher Symes, wrote an article also questioning the law – asking ‘Will there ever be a prosecution under Part 5.8A?’ (2002) 2 INSLB 17, the answer, so far, 16 years later, being ‘no’.
The 2004 Stocktake Report
This report recommended to the government that Part 5.8A be reviewed by CAMAC with a view to seeing whether it might be amended or whether some other reforms might be better. That was in light of evidence then, in 2004, that companies were deliberately structuring their business to avoid paying their full entitlements to employees and more generally unsecured creditors.
The government rejected this recommendation, saying that apart from Part 5.8A, the government’s then
“proposed assetless administration fund, and additional funding for ASIC to investigate and prosecute misconduct in the area of corporate insolvency, should allow for more rigorous testing of this area of law”.
Professor Anderson has made suggestions for how the law should be framed, including that it become a civil penalty provision, proved via an objective test, in addition to remaining a criminal offence. Her drafting might usefully be compared with the government’s.
Necessarily, we may find, both ASIC and FEG will need more funding to enforce these proposed laws.
My views are here.