House of Representatives

Corporations Amendment (Strengthening Protections for Employee Entitlements) Bill 2018

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer, the Hon Stuart Robert MP)

General outline and financial impact

Amendments to the Corporations Act to address corporate misuse of the Fair Entitlements Guarantee scheme

Schedule 1 to the Bill makes amendments to the Corporations Act.

The Bill strengthens enforcement and recovery options to deter behaviours that prevent, avoid or significantly reduce the recovery of employment entitlements in insolvency. These behaviours can cause the improper shift of employee entitlement costs onto Australian taxpayers through utilisation of the taxpayer funded FEG scheme.

The Bill also introduces new provisions that will facilitate the disqualification of company directors and other officers where they have a track record of corporate contraventions, and inappropriately using the FEG scheme to pay outstanding employee entitlements.

Date of effect: The amendments will apply from the day after Royal Assent.

Proposal announced: On 5 October 2017, the Government announced its intention to implement law reform to address corporate misuse of the FEG scheme.

Financial impact: Nil.

Human rights implications: This Bill is compatible with human rights as it does not raise any human rights issues.

Compliance cost impact: $150,000 annually.

Summary of regulation impact statement

Regulation impact on business

Impact: The proposed amendments will impose regulatory burdens and other costs on a very limited number of people and businesses engaging in inappropriate sharp corporate practices.

It will not impose costs on the majority of businesses, company directors and officers, and other persons who operate legitimately, as the behaviour of these entities and people is not within the scope of the reforms.

Main points:

Certain employers, and parties associated with them, are deliberately structuring their business affairs through the use of sharp corporate practices to avoid paying employee entitlements when their business enters winding up, resulting in inappropriate reliance on the FEG scheme to pay outstanding employee entitlements.
Such misuse of the FEG scheme is contributing to the increasing costs of the taxpayer funded scheme.
Enforcement and recovery related amendments to the Corporations Act will address key deficiencies in the law.
The reforms are expected to impose a small increase in compliance costs.

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