Employees - Receivership
What is a receivership?
A company most commonly goes into receivership when a receiver is appointed by a secured creditor who holds security over some or all of the company’s assets.
The receiver’s primary role is to collect and sell sufficient of the company’s charged assets to repay the debt owed to the secured creditor.
What is the receiver’s role?
The receiver’s role is to:
- collect and sell enough of the charged assets to repay the debt owed to the secured creditor (this may include selling assets or the company’s business)
- pay out the money collected in the order required by law, and
- report to ASIC any possible offences or other irregular matters they come across.
The receiver’s primary duty is to the company’s secured creditor. The main duty owed to unsecured creditors is an obligation to take reasonable care to sell charged property for not less than its market value or, if there is no market value, the best price reasonably obtainable. A receiver also has the same general duties as a company director.
The receiver has no obligation to report to unsecured creditors, including employees, about the receivership.
Do I get paid in a receivership?
If the receiver continues to trade the business, they must pay out of the company assets available to them, ongoing employee wages for services provided and other employee entitlements that arise after the date of appointment. These payments are treated as an expense of the receivership.
The appointment of a receiver and manager does not automatically terminate the employment of the company’s employees. As a result, unless the receiver adopts the employment contracts or enters into new contracts of employment with employees, they are not personally liable for any employee entitlements that arise during the receivership.
If the company’s business is sold by the receiver as a going concern, it may be that most, if not all, of the company’s employees will keep their jobs. In this case, it is usual for the new owner to take over the company’s liability for outstanding employee entitlements. You should seek advice about how the terms of the proposed sale of the business affect the payment of your entitlements.
If there are insufficient funds to pay all creditors in full, the money from the realisation of assets must be distributed as follows:
- money from the sale of fixed charge assets is paid to the secured creditor after the costs and fees of the receiver in collecting this money has been paid out
- money from the sale of floating charge assets is paid out as follows:
- the receiver’s costs and fees in collecting this money
- certain priority claims, including employee entitlements (if the liability for these hasn’t been transferred to a new owner), and
- repayment of the secured creditor’s debt.
If employee entitlements are to be paid by the receiver under a floating charge, the payments must be made in the following order:
- outstanding wages and superannuation
- outstanding leave of absence (including annual leave and sick leave, where applicable, and long service leave), and
- retrenchment pay.
Each class of entitlement is paid in full before the next class is paid. If there are insufficient funds to pay a class in full, the available funds are paid on a pro rata basis (and the next class or classes will be paid nothing).
The priority claims of directors and their spouses or relatives for the period they are a director, spouse or relative of a director are limited to a maximum of $2,000 for outstanding wages and superannuation, and $1,500 for outstanding leave entitlements. Directors and their spouses or relatives are not entitled to any priority retrenchment pay for the period they are a director, spouse or relative of a director.
How do I get paid in a receivership?
If a receiver must pay outstanding priority employee entitlements, they may advise you beforehand how much they believe you are owed. Promptly contact the receiver if you disagree with their calculation.
You may be required to complete an employee entitlement claim form. In this case, you should contact the receiver’s office to agree and settle the amount.
You may need to provide evidence to justify your claim. It is important that you keep your pay records or other records of the terms of your employment. You may also need these records to help you complete your income tax return and establish any entitlement to FEG or GEERS if the company enters liquidation.
When submitting a claim, ask the receiver to acknowledge receipt of your claim and advise if any further information is needed.
If the receiver rejects your claim after you have taken the above steps, seek legal advice. If you have a query about the timing of the payment, discuss this with the receiver.
What are the Fair Entitlements Guarantee (FEG) and the General Employee Entitlements and Redundancy Scheme (GEERS)?
Employees who are owed certain employee entitlement after losing their job because their employer went bankrupt or into liquidation may be able to get financial help from the Australian Government.
This help is available through either the Fair Entitlements Guarantee (FEG) or the General Employee Entitlements and Redundancy Scheme (GEERS).
On 5 December 2012, the Fair Entitlements Guarantee Act 2012 commenced, establishing the FEG as a legislative scheme to replace GEERS.
Fair Entitlements Guarantee
The FEG is a scheme of last resort, to assist employees who have lost their job because their employer entered liquidation or bankruptcy. The FEG operates in relation to claims for assistance for unpaid employee entitlements for all employer insolvency events that occur on or after 5 December 2012. For more information about the FEG visit www.deewr.gov.au/feg, call the FEG Hotline on 1300 135 040 or email FEG@deewr.gov.au
General Employee Entitlements and Redundancy Scheme
GEERS continues to operate in relation to claims for assistance for unpaid employee entitlements for employer insolvency events that occurred before 5 December 2012. For more information about GEERS visit www.deewr.gov.au/geers, call the GEERS Hotline on 1300 135 040 or email GEERS@deewr.gov.au
If you are employed by a company that is in receivership you are not eligible for FEG or GEERS until and unless the company enters liquidation.
Do I receive a payment summary or separation certificate?
Most employees require a PAYG Payment Summary (group certificate) to complete and lodge their income tax return. A Separation Certificate may also be required before an employee who loses their job can apply for social security.
If a receiver pays you any employee entitlements, they must provide you with a PAYG Payment Summary recording the entitlements paid and any income tax deducted. Contact the receiver to find out if they are going to prepare your PAYG Payment Summary for entitlements paid by the company prior to their appointment and, if so, what period it will cover. The receiver is not obliged to prepare this.
If you can’t obtain a PAYG Payment Summary for any period, contact the Australian Taxation Office on 13 28 61 to find out how to meet your obligations.
A receiver must prepare a Separation Certificate for any employee whose employment is terminated during the receivership. They are not obliged to prepare one for terminations that occurred prior to the receivership.
Contact Centrelink on 13 10 21 to find out what you should do if you can’t obtain a Separation Certificate.
What happens when a receivership ends?
A receivership usually ends when the receiver has collected and sold all of the assets or enough assets to repay the secured creditor, completed all their receivership duties and paid their receivership liabilities. Generally, the receiver resigns or is discharged by the secured creditor.
Unless another external administrator has been appointed, full control of the company and any remaining assets goes back to the directors.