GEERS - SOMETHING TO SMILE ABOUT
01 03 2006
The insolvency of a business is a distressing time for the owners of the business who may have lost their hard earned investment but spare a thought also for the significant impact it has on the employees of the business.
Until recently, employees, despite having a priority for payment ahead of unsecured creditors for their outstanding entitlements, were only able to recover their outstanding entitlements if there were sufficient assets available to meet the other priorities ahead of employee claims. In addition, sufficient recoveries could take more than a year to eventuate. This uncertainty of payment and time lag coupled with the need to find alternative employment placed great pressure on the household.
The introduction of the General Employee Entitlements & Redundancy Scheme (“GEERS”) on 12 September 2001 has alleviated to some extent some of these pressures. From 1 November 2005 this scheme has been modified to provide further assistance to those affected by insolvency. Under the current scheme, employees impacted upon by a liquidation or bankruptcy of their employer have the ability to lodge a claim with GEERS seeking payment of the following:
- unpaid wages (up to a annual wage threshold of $94,900 and now includes underpayment for the three months prior to the appointment of the Insolvency Practitioner);
- unpaid annual leave;
- unpaid long service leave;
- unpaid notice in lieu; and
- unpaid redundancy (to a maximum of 8 weeks)
Note that superannuation entitlements, which are often outstanding on the appointment of an Insolvency Practitioner, will not be paid by GEERS. Superannuation does however continue to maintain a strong priority under the Corporations Act for dividend purposes.
The decision to pay the claim rests with GEERS and a claimant will usually be ineligible if:
- they were contractors, subcontractors or agents (ie. they must have been an employee);
- the Insolvency Practitioner expects there will be funds available to pay the outstanding entitlements within 16 weeks of the claim being received by GEERS;
- the claim is received greater than 12 months after their termination of employment or the date of the Insolvency Event; or
- failure to provide additional information requested by GEERS.
Generally we have found that GEERS have paid the approved claims within 6 - 12 weeks of the liquidation or bankruptcy of the employer.
Until 1 November 2005, directors (or those related to a director) were not eligible to any payment under GEERS. Directors (or those related to a director) are now eligible to the limits otherwise imposed by the Corporation Act, being to a maximum of $2,000 for outstanding wages and $1,500 for outstanding leave (there is no entitlement for directors in respect of notice or redundancy).