Fair Entitlements Guarantee (FEG) Scheme
Insolvency and the winding up of a business, is a difficult and stressful time for families, employees, employers and customers.
Amongst many issues, where can those involved go to claim entitlements they are owed by a failing business?
If employees are owed entitlements, funds from the insolvency process will generally be set aside to pay outstanding entitlements.
However, there will be circumstances in which a business goes broke but cannot pay an employee’s owed entitlements. In this situation, the Federal Government has had a scheme to assist which has been available for a number of years in various forms.
But what if you are a family member connected to an insolvent business?
Recently, we were asked by a Director on a job why his brother, who was employed by his company, was restricted in the amount he could claim under the FEG scheme compared to others who worked for the same company. Often referred to as the “Blood Rule”, it needs to be explained and its significance appreciated.
The Corporations Act 2001 prioritises which entitlements are paid first and who is first to receive them. Relatives (defined by the Act as, in relation to a person, means the spouse, parentor remoter lineal ancestor, childor remoter issue, or brother or sister of the person), are considered excluded employeesunder the Act.
The definition of Excluded employees also encompasses Company Directors. Section 556 (2) of the same Act, restricts the priority payment of wages and superannuation to excluded employees to a maximum of $2,000. Any remaining payments will only be paid after priority payments required by law are made and the secured debt of the company is settled.
For claims relating to annual and long service leave, excluded employees can only claim as a priority a maximum of $1,500 with any remaining amount treated as unsecured debt.
Amounts due to excluded employees in relation to redundancy or termination payments are treated as unsecured debt. This measure is in place to protecting rorting and manipulation of company entitlements and finances by family-run businesses.
FEG supercedes GEERS
In December 2012, the Federal Government established the Fair Entitlement Guarantee (FEG) scheme where employees could be awarded any outstanding entitlements and wages they were owed prior to a business becoming insolvent.
FEG replaced the General Employee Entitlements and Redundancy Scheme (GEERS) which was established in 2001 by the Howard Government to similarly assist employees and employers when businesses' became insolvent.
FEG will handle any claims made after 5th December 2012 while GEERS will continue to process any claims made prior to that date.
In terms of practice, FEG is very similar to GEERS in most aspects for claimants as they will still be eligible to claim up to 13 weeks wages, annual leave, long service leave, redundancy pay and up to five weeks of payment in lieu of notice.
However, there are differences between the two programs and these differences are important for those giving advice and those wanting to claim. An excluded employee, for purposes of the Corporations Act, is not eligible to claim under FEG. Accordingly, relatives receive no government assistance when the family business fails.
Unlike the GEERS program that paid entitlements until an insolvency Practitioner was appointed, claimants will now only be paid until the end of their employment under the FEG scheme before being reduced by the portion the Practitioner is required to pay.
FEG claimants must also meet the requirements of the Migration Act 1958 by the end of their employment with no grace period allowed to meet the requirements. Most importantly, FEG claimants now only have 12 months from the later of the date of either the end of employment or the date of insolvency to pursue a claim. There are no extensions regardless of claimants’ circumstances.
Recently released statistical information is informative, consider for 2012-13:
- $261,650,549 was advanced to 16,023 eligible claimants from 2111 insolvent entities
- 97.3 % of claims were processed with 4 weeks of receiving verified entitlement data from insolvency practitioners (target 98%)
- 81.4 % of claims were processed within 16 weeks of receipt (target=80%)
For more information, contact Macks Advisory on 08 8231 3323 or call into our office at Level 11, 99 Gawler Place, Adelaide SA 5000.
Further information about FEG can also be obtained from their website at www.employment.gov.au/feg
