Employees - Voluntary administration
What is a voluntary administration?
Voluntary administration is an insolvency procedure where the directors of a financially troubled company or a secured creditor with a charge over most of the company’s assets appoint an external administrator called a ‘voluntary administrator’.
The role of the voluntary administrator is to investigate the company’s affairs, to report to creditors and to recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or be returned to the directors.
A voluntary administrator is usually appointed by a company’s directors, after they decide that the company is insolvent or likely to become insolvent. Less commonly, a voluntary administrator may be appointed by a liquidator, provisional liquidator, or a secured creditor.
What happens to my employee entitlements?
If the voluntary administrator continues to trade the business, they must pay, out of the assets available to them, ongoing wages for services provided and other employee entitlements that arise after the date of their appointment. These payments are treated as an expense of the voluntary administration.
The appointment of a voluntary administrator does not automatically terminate the employment of the company’s employees. As a result, unless the voluntary administrator 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 voluntary administration.
As voluntary administration is an interim form of external administration, employee entitlements that arose prior to voluntary administration are not usually paid during voluntary administration.
How and when these employee entitlements are paid depends on the option passed at the creditors’ meeting (i.e. company returned to directors, a deed of company arrangement, or liquidation).
If the company is returned to the directors, the directors will be responsible for ensuring that the company pays outstanding entitlements as they fall due. It is only in very rare circumstances that creditors will resolve to return the company to the control of its directors.
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 will operate 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 will continue 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
You are not eligible for FEG or GEERS assistance if your former employer is a company in voluntary administration or subject to a deed of company arrangement until and unless the company goes into liquidation.
You may wish to seek independent legal advice on whether the terms of a proposed deed will affect your ability to make a claim under FEG or GEERS if the company subsequently goes into liquidation.
If the deed provides for your ongoing employment, you may wish to seek advice on how this affects payment of your outstanding entitlements.
What information will I receive in a voluntary administration?
The voluntary administrator should notify you of the voluntary administration and the first meeting of creditors within days of the appointment.
The voluntary administrator then investigates and reports to creditors on the company’s business, property, affairs and financial circumstances, and on the three options available to creditors. These are:
- end the voluntary administration and return the company to the directors’ control
- approve a deed of company arrangement through which the company will pay all or part of its debts and then be free of those debts, or
- wind up the company and appoint a liquidator.
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 voluntary administrator or deed administrator 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 voluntary administrator or deed administrator 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.
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 voluntary administrator and deed administrator must prepare a Separation Certificate for any employee whose employment is terminated during the voluntary administration or deed of company arrangement. They are not obliged to prepare one for terminations of employment that occurred prior to voluntary administration.
Contact Centrelink on 13 10 21 to find out what you should do if you can't obtain a Separation Certificate.
How do I vote at meetings of creditors?
To vote at any creditors’ meeting you must lodge details of your debt or claim with the voluntary administrator. Usually, the voluntary administrator will provide you with a form called a ‘proof of debt’ to be completed and returned before the meeting.
You may appoint a proxy to attend and vote at a meeting on your behalf, including the chairperson.
How you vote at the second meeting on the three possible options, including any competing proposals for a deed of company arrangement, is a commercial decision based on your assessment of the company and its future prospects, and your personal circumstances. The information provided by the voluntary administrator, including opinions expressed, will assist you. However, you are not obliged to accept the administrator’s recommendation.
In a liquidation, employees have the right, if there are funds left over after payment of the fees and expenses of the voluntary administrator and deed administrator, to be paid their outstanding entitlements in priority to other unsecured creditors.
A deed of company arrangement must ensure that employees’ entitlements have the same priority as in a liquidation unless the eligible employees agree by a majority in both number and value to vary this priority.
If a deed proposal seeks to vary the priority for employee entitlements, the voluntary administrator must call a meeting of eligible employees giving at least five business days notice of the meeting. They must give to eligible employees at the same time as the notice of meeting a statement setting out:
- their opinion about whether the proposed variation would result in the same or better outcome for employees than if the company went into liquidation
- their reasons for this opinion, and
- any other information to help them make an informed decision about varying the priority.
Before you make a decision on how to vote at the meeting of eligible employee creditors or the creditors’ meeting where the decision is made whether or not to accept the deed of company arrangement proposal, make sure you understand how the deed will affect the priority of payment of your outstanding entitlements.
For more information please go to Employees - Deed of company arrangement
What is the role of a committee of creditors?
A creditors’ committee may be formed to consult with the voluntary administrator or deed administrator, and receive reports on the conduct of their administration. In a voluntary administration, this committee is called a ‘committee of creditors’. While the company is under a deed of company arrangement, it is called a ‘committee of inspection’.
Employees may wish to nominate a representative to be on the committee and have a say in matters that may impact on their interests.