Issues for Creditors and Employees

This file describes the issues that creditors of a company have when it is placed into Administration (or some other insolvency)

Go back to the Public File Archives | Unpaid Mushrooms | Coming soon: Hints for creditors to increase the chances of a good payout.

The current insolvency law

Insolvency law is too complex.

Most creditors only deal with an insolvency once in their lifetime, and they deal with company directors and Administrators (or other professionals) who deal with the law day in - day out. This is a recipe for deception and mis-information. It is too difficult for creditors to know what rights they have, and to use these rights effectively.

A Deed of Company Arrangment, often used when a company is to trade out, is very open to abuse; very often it is Phoenix company fraud in disguise.

Administrators are often chosen by the company Directors, so Administrators do things to suit them. They employ legal trickery and obstructionist tactics to the detriment of creditors.

Issues for employees

Employees are treated a bit differently to other creditors in a case of insolvency - they have priority ahead of trade creditors in liquidation, and they are eligible to apply for assistance under a scheme known as GEERS (General Employee Entitlements and Redundancy Scheme).

Employees, it seems, enjoy better protection than trade creditors in a case of insolvency. However, there are several issues that affect them badly:

If the Directors propose a Deed of Company Arrangement which pays part payments to both employees and trade creditors, the employees become ineligible for GEERS - this is something that the employees have very little control over. A discussion with the Government yielded these two points:

Both points assume that creditors ranking higher than employees have been dealt with.

Issues for Trade Creditors

Many trade creditors are small businesses who can ill-afford the money lost to the insolvent debtor, let alone expensive legal advice.

Many companies are slow payers. While there has been a small improvement in recent years, companies often become very slow payers just prior to failure. This increases the loss to creditors when a company goes insolvent.

Issues for the man in the street

Public trust in many companies is poor because of the perception that they rip consumers off, by various means. This includes cases where people have paid for goods which don't arrive - because the company has collapsed.

The Tax Office is often a creditor - and they bear the brunt of much unfair behaviour. This adds to the perception that companies do not pay their fair share of tax, which is true to some degree. Salary and wage earners feel they are paying high taxes because of companies that avoid their tax responsibilities.

Solutions

A Simple Law

We believe the answers lie in simplifying the insolvency law - it should not have so many twists and turns. We demand these things:

Stop the abuses

Various abuses of company law occur from time to time. Phoenix Company fraud is well known, where essentially a director washes his hands of his creditors while continuing to run their business by moving it into another company.

A Deed of Company Arrangement is sometimes used for a similar purpose - to make a pathetically low payment to creditors while continuing to run their business.

Further Action

Find out what other creditors are going through by joining or browsing Unpaid Mushrooms

Ring the Tax Office and demand your super now (in Australia ph: 13 10 20)

Contact your M.P. or election candidates and let them know insolvency law is an issue.

Write a letter to a newspaper

Contact the author, Nick Bishop: otmushrooms-owner [at] yahoogroups.com.au, or call/SMS the mobile phone: 0438 366342 (from outside Australia: +61438 366342).

Sobering statistics

Every week, there are about 275 company failures in Australia.

Even when solvent, the average time a company takes to pay is about 45 days.

About Unpaid Mushrooms

History

This email group, originally called OT Mushrooms, was formed shortly after Open Telecommunications (OT) was placed into Voluntary Administration on 12 July 2002. It consisted mostly of ex-employees, and was a useful forum for insolvency issues. OT entered into a Deed of Company Arrangement from 18 November 2002 to 24 December 2003. The end result of the Deed was a 43% payment to employees and ex-employees. Because of the way the Deed was structured, the employees were not eligible for GEERS assistance.

The group has now been opened up to include any creditor suffering under any insolvency.

Achievements

One of the important functions of this email group was to share ideas and keep everyone informed.

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