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Readers who are familiar with the insolvency regime in Australia would be aware that the Federal Government operates a financial safety net for workers who have their employment terminated in the event of their employer’s insolvency (via liquidation or bankruptcy) and who are left without full payment of their employee entitlements.

This safety net is governed by the Fair Entitlements Guarantee Act 2012 (Cth) (Act), which provides for the Fair Entitlements Guarantee Scheme (FEGS). FEGS provides these employees with financial assistance by way of a non-recourse advance to cover certain unpaid employment entitlements such as wages, annual leave, long service leave, termination notice and redundancy pay (but excluding superannuation). Whilst value threshold limits apply, under the current scheme redundancy payments of up to 4 week per full year of service are available.

Once a payment is made by FEGS to the former employee to satisfy their claim, the Federal Government effectively ‘stands in the shoes’ of the employee to receive any dividend that the liquidator would have otherwise paid to the employees (effectively in repayment of the FEGS advance it made to those former employees).

As part of the Federal Budget recently announced, a cap on the redundancy payments payable under FEGS to terminated employees has been contemplated.

This cap, from 1 January 2015, is set to see the maximum redundancy payments available under FEGS limited to 16 weeks. I understand that this will see FEGS being aligned to the maximum redundancy pay set by the National Employment Standards under the Fair Work Act 2009 (Cth).

In the event an employee is owed more than 16 weeks redundancy by their insolvent employer, the employee will still be able to prove as a priority creditor in the liquidation / bankruptcy for any outstanding amounts not paid to them by FEGS.

For workers in the slowly collapsing Victorian and South Australian car component industry, this is unlikely to be welcome news. Particularly as many have been long standing employees and are likely to have accrued significant redundancy entitlements.

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