The Protection of Australian Employee Entitlements Following Corporate Collapses: Grounds for Special Attention

Abstract

Under existing Australian corporations law employee entitlements afforded priority over other unsecured creditors in the event of corporate insolvency. However, this preferential treatment to employee entitlements does not provide effective protection for employee entitlements. Secured creditors are able to use a range of security instruments to be ranked ahead of all unsecured creditors and in most of the cases these creditor exhaust the assets available for distribution. Employees do not have the bargaining power or legal support to use security instrument as protective measures to protect their entitlements despite the fact that the deferred employees’ entitlements, such as accrued leave are effectively used by employers as sources of capital against which secured creditors take security. The employees’ position is further weaken because they are often excluded from the processes of decision making which affect their rights and interests. This paper examines employee position as creditors and how legislation in Australian currently provides a safeguard for employee entitlements. It argues that employee entitlements and employees as unsecured creditors should be treated differently from other creditors where corporate collapses occur.