FEG is the new GEERS

As many of you will be aware, on 5 December 2012, the General Employee Entitlements and Redundancy Scheme (GEERS) was replaced with the Fair Entitlements Guarantee scheme (FEG). 

The major issue with GEERS was that there was no legislative basis for the scheme.  GEERS was simply an administrative arrangement operated by the Department of Education, Employment and Workplace (Department).  Accordingly, certainty and confidence in the scheme was never available as there was always the possibility of unilateral amendment (or abolishment) of the scheme at the whim of the government in power.

This issue was resolved on the enactment of the Fair Entitlement Guarantee Act 2012 (Cth) (Act), which established the FEG scheme.

At first glance, the FEG scheme enshrines many of the benefits which were available to employees under GEERS.  A summary of the main provisions of the Act are as follows.

When will the FEG apply?

An employee will be eligible for an advance under the FEG scheme if that employee loses his or her job as a result of the employer entering into bankruptcy or liquidation on or after 5 December 2012.  Employees can still make a claim under GEERS if their employer became insolvent prior to 5 December 2012.

Who is eligible?

Section 10 of the Act provides that, a person is eligible for an advance if, amongst other things:

  • the person’s employment by a particular employer has ended;

  • an insolvency event¹ happened to the employer;

  • the end of the employment:

    • was due to the insolvency of the employer;

    • occurred less than six months before the appointment of an insolvency practitioner² to the employer; or
    • occurred on or after the appointment of an insolvency practitioner to the employer.
  • the person has taken steps, so far as reasonable, to prove those debts in the winding up or bankruptcy of the employer; and

  • if the person was owed any of those debts before the insolvency event happened, the person took reasonable steps before that event to be paid those debts.

As expected, the Act also excludes certain individuals from access to the FEG scheme, as the Act expressly incorporates the excluded employee provisions as set out in section 556 of the Corporations Act 2001 (Cth).  In addition, employees who were engaged as contractors by the insolvent employer in the six months prior to the relevant insolvency event, may be ineligible under the Act.

What is an eligible employee entitled to?

Eligible employees may be able to get assistance through the scheme for:

  • up to 13 weeks’ wages (including allowances, loadings and overtime/penalty rates);

  • accrued but untaken annual leave and long service leave;

  • payment in lieu of notice (maximum of five weeks); and

  • redundancy pay up to a maximum of four weeks’ pay per year of service.

Payment of the advance

An advance under the Act must be paid to the employee or insolvency practitioner. The Explanatory Memorandum suggests that the reason for allowing direct payments to employees is to allow greater flexibility than GEERS, which only allowed payment through an insolvency practitioner or through a third party provider.

Lavan Legal comment

The introduction of the Act and the FEG scheme will make clear the arrangements for the payment of employee entitlements on the insolvency or bankruptcy of the employer.  The Act also has the effect of shoring up the constitutional validity of the FEG scheme (ie as it is no longer an “administrative arrangement”).

As was the case with GEERS, the success of the FEG scheme will be reliant on the partnership between the Department and insolvency practitioners. The Department will primarily rely on insolvency practitioners to provide employee information from company books and records.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.