What is a receivership?
A company most commonly goes into receivership when a receiver is appointed by a secured creditor who holds security over some or all of the company’s assets.
What is the receiver’s role?
The receiver’s role is to:
• collect and sell enough of the charged assets to repay the debt owed to the secured creditor (this may include selling assets or the company’s business)
• pay out the money collected in the order required by law, and
• report to ASIC any possible offences or other irregular matters they come across.
Do employees get paid in a receivership?
If the receiver continues to trade the business, they must pay out of the company assets available to them, ongoing employee wages for services provided and other employee entitlements that arise after the date of appointment. These payments are treated as an expense of the receivership.
The appointment of a receiver and manager does not automatically terminate the employment of the company’s employees. As a result, unless the receiver 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 the receivership.
If the company’s business is sold by the receiver as a going concern, it may be that most, if not all, of the company’s employees will keep their jobs. In this case, it is usual for the new owner to take over the company’s liability for outstanding employee entitlements. You should seek advice about how the terms of the proposed sale of the business affect the payment of your entitlements.
If there are insufficient funds to pay all creditors in full, the money from the realisation of assets must be distributed as follows:
• money from the sale of fixed charge assets is paid to the secured creditor after the costs and fees of the receiver in collecting this money has been paid out
• money from the sale of floating charge assets is paid out as follows:
– the receiver’s costs and fees in collecting this money
– certain priority claims, including employee entitlements (if the liability for these hasn’t been transferred to a new owner), and
– repayment of the secured creditor’s debt.
If employee entitlements are to be paid by the receiver under a floating charge, the payments must be made in the following order:
• outstanding wages and superannuation
• outstanding leave of absence (including annual leave and sick leave, where applicable, and long service leave), and
• retrenchment pay.
How do employees get paid in a receivership?
If a receiver must pay outstanding priority employee entitlements, they may advise you beforehand how much they believe you are owed. Promptly contact the receiver if you disagree with their calculation. You may be required to complete an employee entitlement claim form. In this case, you should contact the receiver’s office to agree and settle the amount.
What is the General Employee Entitlements and Redundancy Scheme?
The General Employee Entitlements and Redundancy Scheme (GEERS) is a basic payment scheme designed to assist employees whose employment has been terminated due to the liquidation of their employer and who are owed certain employee entitlements. GEERS is administered by the Department of Education, Employment and Workplace Relations.
If you are employed by a company that is in receivership you are not eligible for GEERS until and unless the company enters liquidation.
Do employees 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 receiver 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 receiver 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. The receiver is not obliged to prepare this.
A receiver must prepare a Separation Certificate for any employee whose employment is terminated during the receivership. They are not obliged to prepare one for terminations that occurred prior to the receivership.
What happens when a receivership ends?
A receivership usually ends when the receiver has collected and sold all of the assets or enough assets to repay the secured creditor, completed all their receivership duties and paid their receivership liabilities. Generally, the receiver resigns or is discharged by the secured creditor.
Unless another external administrator has been appointed, full control of the company and any remaining assets goes back to the directors.
Here at The Quinn Group, our dedicated team of lawyers and accountants are able to assist you should you require further advice on company receivership. Contact us now by submitting an online enquiry form or call 1300 QUINNS or on +61 2 9223 9166.