Earlier this year, the Corporations Amendment (Strengthening Protections for Employee Entitlements) Act (Cth) (the Act) commenced. This article will focus on the provisions introducing employee entitlement contribution orders.
Please refer to our article summarising the critical changes and key concepts introduced by the Act.
The amendments aim to deter corporate groups from adopting structures where the insolvency of a corporate group member with employee entitlement liabilities results in those entitlements not being paid, despite the fact that other corporate group members have resources to pay those entitlements. This closes a gap whereby one member of a corporate group could take on the labour liabilities of the group, with other group members benefitting from the work of those employees but avoiding the liability to pay the employee entitlements in an insolvency context.
Significantly, there was no equivalent provision in the former legislative framework.
However, note that the government bodies can only seek such an order where they have obtained the liquidator’s written consent or leave of the Court.
Subject to certain requirements, the Court can make an employee entitlement contribution order requiring an entity to contribute to the payment of employee entitlement liabilities of an insolvent company within the same “contribution order group”.
The Court may make a contribution order in relation to an entity where:
The Court may order the contributing entity to pay the liquidator of the insolvent company an amount that is equivalent to the benefit obtained by that entity. However, it cannot exceed the amount of the unpaid employee entitlements.
The Act sets out six tests as to when two entities are members of the same “contribution order group”. By way of example, this includes where:
For further information, see our article considering disqualification from managing corporations.
Kimberley Arden, Partner
Tahlia O’Connor, Associate