Pressing the right buttons: Australian case studies in the protection of employee entitlements against corporate insolvency

• Published date: 01 March 2014
• Date: 01 March 2014
• Author: Helen ANDERSON
• DOI: http://doi.org/10.1111/j.1564-913X.2014.00199.x

International Labour Review, Vol. 153 (2014), No. 1

Copyright © The author 2014

Journal compilation © International Labour Organization 2014

Pressing the right buttons:

Australian case studies in

the protection of employee entitlements

against corporate insolvency

Helen ANDERSON*

Abstract. Looking at recent cases where employees in Australia managed to sal-

vage their accrued entitlements when their company became insolvent, the author

considers the factors which contributed to those successful outcomes. Comparing

those examples with cases where workers in similar circumstances were not so

fortunate, she shows that the successful protection of entitlements is often a matter

of timing, strategic choices, innovative approaches, regulator intervention, union

pressure, political expediency or a happy conuence of circumstances. Someone,

somewhere, has been “pressing the right buttons”. Lessons will be drawn from the

cases considered here, she argues.

“You had to play the big scene”, he said coldly. “Stand on your rights,

talk about the law. How ingenuous can a man be, Marlowe? A man

like you is supposed to know his way around. The law isn’t justice. It’s

a very imperfect mechanism. If you press exactly the right buttons and

are also lucky, justice may show up in the answer. A mechanism is all

the law was ever intended to be.”

(Raymond Chandler, The Long Goodbye)

C

orporate failure will, and always should, exist. In a Darwinian sense, it is

necessary to weed out inefcient businesses, but it is not necessary

that vulnerable employees should suffer unreasonably as a result. This art-

icle looks at some of the business failures that have occurred over the past

decade-and-a-half in Australia where employees have managed to salvage

their accrued entitlements, with or without retaining their jobs, and considers

* Associate Professor, Melbourne Law School, University of Melbourne; Adjunct Associ-

ate Professor, Department of Business Law and Taxation, Monash University. The author thanks

the ARC for its generous support for this research through its grant of AU$144,000 over three

years (DP1092474, “Reform of the Personal Liability of Directors for Unpaid Employee Entitle-

ments”, 2010–2012).

Responsibility for opinions expressed in signed articles rests solely with their authors, and

publication does not constitute an endorsement by the ILO.

International Labour Review118

the factors which contributed to those successful outcomes. These cases will

be contrasted with other, similar cases where the workers were not so for-

tunate. What becomes apparent from looking at this array of cases is that

the successful protection of entitlements is often a matter of timing, stra-

tegic choices, innovative approaches, regulator intervention, gritty determin-

ation by insolvency practitioners, union pressure, political expediency or a

happy conuence of circumstances. Someone, somewhere, has been pressing

the right buttons.

In Australia, with the exception of a statutory priority on winding up,1

the law appears to have played very little part in the protection of employee

entitlements when a company becomes insolvent. These entitlements comprise

unpaid wages, accrued leave, redundancy entitlements, payment in lieu of no-

tice and unremitted superannuation contributions. In 200 0, the Corporations

Law Amendment (Employee Entitlements) Act 200 0 (Cth) criminalized trans-

actions entered into by directors with the intention of depriving employees of

their entitlements, but this provision is conspicuous by its absence in post-20 00

entitlements cases. That same year saw the introduction of the taxpayer-funded

Employee Entitlement Support Scheme (EESS). This was replaced in 2001

by the General Employee Entitlements and Redundancy Scheme (GEERS),

which was itself replaced in 2012 by the Fair Entitlements Guarantee (FEG).

These schemes appear to have taken some of the urgency out of the call for

reform. For reasons that will become apparent, unions and others continue

their campaign for systemic improvement to ensure full and timely protection

of workers against the loss of their accrued entitlements.

This article does not try to make the case for the protection of workers’

entitlements. That has been done elsewhere.2 Nor does it propose a “solution”

to the problem.3 Rather, it seeks to identify trends and issues through the exam-

ination of signicant cases and by reecting upon the regulatory framework

that underpins the payment of employee entitlements during corporate insol-

vency. It shows that soft and hard law is formed by, and then informs, Austra-

lia’s complex and diverse corporate business environment. Indeed, all of the

Federal Government’s measures to protect employee entitlements were moti-

vated by the corporate collapses considered in this article, and these measures

have played their part in the resolution, satisfactory or otherwise, of subse-

quent cases. Dealing with the issue of threatened employee entitlements as

an abstract intellectual exercise is therefore not likely to yield a satisfactory

1 Australia has adopted the obligations of Part II of the ILO’s Protection of Workers’

Claims (Employer’s Insolvency) Convention, 1992 (No. 173), which requires the protection of

workers’ claims by means of providing a privilege on winding up (see the Corporations Act 2001

(Cth) s556(1)(e)-(h)).

2 See, for example, Gleig (1987), Bronstein (1987), Howse and Trebilcock (1993), Darvas

(1999), Davis (2002), Mitchell, O’Donnell and Ramsay (2005), Anderson (2008) and Shah (2010).

3 Many have been canvassed by scholars and practitioners. See, for example, Campo (200 0),

Hammond (2000), Noakes (200 0), Bickerdyke, Lattimore and Madge (2001), Riley (20 02a and

2003), Davis and Burrows (2003) and Murray (200 3).