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TOUGHER RULES FOR FAIR ENTITLEMENTS GUARANTEE

Monday, 13 November 2017

The Government has foreshadowed tougher new rules to prevent companies taking improper advantage of the Government’s Fair Entitlements Guarantee, designed to guarantee employees’ wages and other entitlements when a company collapses.

The Government proposes to introduce legislation to penalise company directors and other persons who engage in transactions which are directed at preventing, avoiding or reducing, employer liability for employee entitlements.

The proposed changes to the Fair Entitlements Guarantee form part of the Government’s ‘phoenixing’ reforms (see previous item).

Revenue and Financial Services Minister Kelly O’Dwyer said it was clear that some company directors were misusing the FEG scheme to meet liabilities that can and should be paid directly by the employer rather than passed on to Australian taxpayers.

The FEG scheme was an avenue of last resort that assisted employees when their employer’s business fails and the employer had not made adequate provision for employee entitlements.
She said: “The proposed changes will provide a significant disincentive for employers to exploit the taxpayer-funded scheme and avoid their responsibilities to their employees.”

The changes would:
• penalise company directors and other persons who engage in transactions which are directed at preventing, avoiding or reducing, employer liability for employee entitlements;
• ensure recovery of FEG from other entities in a corporate group where it would be just and equitable and where those other entities have utilised the human resources of the insolvent entity on other than arm’s length terms; and
• strengthen the ability under the law to sanction directors and company officers with a track record of insolvencies where FEG is repeatedly relied upon.

The minister said: “Costs under the FEG scheme have dramatically increased in recent years with FEG payments totalling more than $1 billion between 2012-13 and 2015-16.

“There is increasing evidence that some employers are deliberately structuring their corporate affairs to avoid paying employee entitlements when a business becomes insolvent.

“The Government’s proposed changes to the Corporations Act will deter those businesses from engaging in practices that inappropriately shift costs onto FEG, while strengthening the ability to pursue recovery of FEG costs.

“These changes will be targeted to deter and punish only those who have inappropriately relied on FEG. They will not affect the overwhelming majority of companies who are doing the right thing.

“The Government is taking action to ensure employers are held responsible for paying their workers and that taxpayers are protected from corporate abuse of the FEG scheme.”

 

Further information

Ministerial media release: Reforms to stop corporate avoidance of employee entitlements at taxpayers’ expense

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