Recent amendments to the Corporations Act 2001 (Cth) (the “Act”) seek to deter avoidance of the payment of employee entitlements and to protect employee entitlements from transactions that avoid or prevent an employee from recovering their entitlements or significantly reduce the amount of those entitlements that an employee can recover in the winding up of a company.
The new amendments strengthen enforcement and recovery options to deter inappropriate market behaviours which result in the avoidance of the payment of employee entitlements, resulting in the improper shift of some or all of those costs onto Australian taxpayers through the drain on the taxpayer funded Fair Entitlements Guarantee scheme.
The Act now introduces tough criminal and civil penalties to individuals and companies that breach the Act as amended.
Criminal liability
Pursuant to section 596AB of the Act, it is an offence for a person to enter into a transaction, or if that person is an officer of a company, to cause that company to enter into a transaction, with the intention of, or with intentions that include the intention to:
- avoid or prevent the recovery of the entitlements of employees of the company; or
- significantly reduce the amount of the entitlements of employees of a company that can be recovered.
A person will also contravene section 596AB of the Act if they enter into the transaction or cause the company to enter into that transaction and they are reckless as to whether the transaction will lead to the results detailed in the above paragraph.
An individual may face the following punishments if convicted of a contravention of section 596AB of the Act:
- 10 years imprisonment;
- a fine of $725,355.00 or an amount being three (3) times the benefit received by the company; or
- both a fine and imprisonment.
A company that is convicted of contravening section 596AB of the Act may be liable for a fine that is the greater of the sum:
- of $7,253,550;
- that is equal to three (3) times the benefit received by the company; or
- that is equal to 10% of the company’s annual turnover for the twelve (12) month period prior to the contravention.
Civil Liability
In addition to the criminal penalties detailed above, pursuant to section 596AC of the Act, a person who enters into a transaction, or causes a company to enter onto a transaction, that contravenes section 596AB of the Act may also liable to a civil pecuniary penalty where that person knows, or a reasonable person in the position of the person would know, that the transaction is likely to:
- avoid or prevent the recovery of the entitlements of employees of the company; or
- significantly reduce the amount of the entitlements of employees of a company that can be recovered.
Furthermore, pursuant to section 596ACA of the Act, a person who has contravened section 596AC of the Act may also be liable to a liquidator or the employees of the company for any losses that the company’s employees may suffer as a consequence of the transaction having been entered into.
A person who is involved in a contravention of section 596AC of the Act, such as a lawyer or an accountant, may also be liable for a civil pecuniary penalty. Pursuant to section 79 of the Act, a person is involved in a contravention where that person has:
- aided, abetted, counselled or procured the contravention;
- induced, whether by threats or promises or otherwise, the contravention;
- been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
- conspired with others to effect the contravention.
Conclusion
As the ramifications that a person can be exposed to as a consequence of a contravention of the provisions of the Act detailed in the above paragraphs can be substantial, immediate legal advice should be sought before any transaction is entered into that prevents an employee from recovering any of their employee entitlements or reduces the amount of those entitlements.
Marino Law has extensive experience acting for directors, liquidators, administrators, lenders, financiers and creditors in the administration of all corporate insolvency appointments. Our highly experienced lawyers regularly advise clients in the following areas of corporate insolvency:
- director penalty notices;
- voluntary administrations;
- liquidations;
- voidable transaction claims pursuant to part 5.7 of the Corporations Act 2001 (Cth);
- enforcement of securities; and
- statutory demands.
Should you require assistance in any of the above areas, please contact one of our highly experienced litigation and insolvency lawyers.
