House of Representatives

Explanatory Memorandum

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

Chapter 2

Employee entitlements

Outline of chapter

2.1 Part 1 of Schedule 1 to the Bill makes amendments to Part 5.8A of the Corporations Act to strengthen the protections provided for the recovery of employee entitlements in insolvency. This will enable the Part to operate more effectively to deter and penalise parties entering into or facilitating agreements or transactions to prevent or avoid the recovery of, or significantly reduce the amount that can be recovered of, those entitlements.

Context of amendments

2.2 The existing provisions in the Part were introduced into law by the Corporations Law Amendment (Employee Entitlements) Act 2000 (Cth) after a number of high profile insolvencies.

2.3 There are existing provisions designed to protect employee entitlements from relevant agreements and transactions that are entered into with the intention of defeating the recovery of those entitlements. These provisions:

•

make it a criminal offence for persons to enter into a relevant agreement or transaction with the intention of, or with intentions that include the intention of, preventing the recovery of or significantly reducing the amount that can be recovered of, a company's employee entitlements; and

•

allow a civil recovery action to be brought by the liquidator (or employees in select circumstances) to recover the loss or damage suffered as a result of a person contravening the criminal provisions by intentionally avoiding the recovery of employee entitlements or significantly reducing the employee entitlements that can be recovered.

2.4 The employee entitlements protected under the existing provisions are the same entitlements that receive preferential payment in a corporate winding up, as outlined in section 556 of the Corporations Act.

2.5 However, since its introduction into the law in 2000, there have been no successful criminal or civil recovery actions under the provisions of the Part.

2.6 The Government's consultation paper noted that:

•

the current provisions are not operating effectively to achieve their intended aims; and

•

reforms to improve and strengthen their operation is not just desirable but necessary.

2.7 These views received strong stakeholder support.

Summary of new law

2.8 Part 1 of Schedule 1 to the Bill makes amendments to the Corporations Act to strengthen the Part's operation to ensure it achieves the aim of deterring the avoidance of employee entitlements, and protecting such entitlements from agreements or transactions that would operate to defeat their recovery.

2.9 In summary:

•

the current criminal offence provision is extended to capture a wider range of situations by lowering the fault element to include circumstances when a person recklessly enters into transactions to avoid, prevent or significantly reduce the recovery of employee entitlements, or transactions that are likely to have those effects;

•

a new civil penalty provision with an objective 'reasonable person' test is introduced to increase the enforcement options available when transactions to avoid, prevent or significantly reduce the recovery of employee entitlements, have been entered into;

•

a new civil compensation provision is introduced to provide a mechanism to compensate those who have suffered loss or damage as a result of contraventions to the civil penalty provision;

•

the criminal offence and civil penalty provisions are expanded to capture officers of a company who cause the company to enter into a transaction that contravenes the criminal and civil penalty provisions;

•

similar to the criminal offence provisions, the civil penalty and compensation provisions captures those who are involved in contraventions of the civil penalty provisions;

•

the parties who can commence civil compensation proceedings are expanded to include the ATO, the DJSB and the FWO, to enhance recovery of unpaid employee entitlements; and

•

various drafting improvements of existing provisions have been made to enhance clarity and readability.

2.10 As a result of the amendments in the Bill, three primary actions are now available to address behaviours of persons that engage in and facilitate transactions in contravention of the Part:

•

proceedings to seek criminal sanctions for when a person intends to enter into, recklessly enters into, or causes the entry into, a transaction that avoids, prevents or significantly reduces the recovery of employee entitlements;

•

civil penalty proceedings for when a person knows, or it was reasonable for the person to know, a transaction is likely to avoid, prevent or significantly reduce the recovery of employee entitlements; and

•

civil compensation proceedings to allow the liquidator (or the ATO, FWO, DJSB and employees, in certain circumstances) to seek compensation for loss or damage suffered as a result of a contravention of the civil penalty provision.

Comparison of key features of new law and current law

Detailed explanation of new law

2.11 Part 1 of Schedule 1 to the Bill makes amendments to the Corporations Act to reform, modernise and strengthen the Part's operation to ensure it achieves the intent of deterring the avoidance of employee entitlements, and protecting those entitlements from agreements and transactions that would prevent, avoid or significantly reduce the recovery of those entitlements.

Section 596AA: Objects and coverage of the Part

Objects of the Part

2.12 The amendments to subsection 596AA(1) clarify and restate the objects of the Part, which are:

•

to deter the avoidance of the payment of employee entitlements (which are protected under subsection 596AA(2)); and

•

to protect employees of companies from relevant agreements, arrangements and transactions that avoid or prevent the recovery of those entitlements, or significantly reduce the amount of those entitlements that can be recovered, in the winding up of the company.

[Schedule 1, items 3 and 4, subsection 596AA(1)]

Coverage of the Part

The Part can apply to a broad range of scenarios

2.13 The provisions have a broad application to ensure the different types of sharp corporate practices used to avoid, prevent or reduce the recovery of employee entitlements are captured.

2.14 The amendments contain appropriate exceptions to limit the application of the offences where it is not appropriate for them to apply, and to ensure legitimate transactions are not impacted by these changes.

2.15 For example, the Part could apply in circumstances where:

•

there is avoidance of the payment of employee entitlements due to illegal phoenixing activity;

•

a company owner recklessly or deliberately removes assets from a company before it is wound up, leaving outstanding unpaid employee entitlements;

•

a corporate group is intentionally restructured through inter-group asset and liability transfers so that an employing entity does not have the capacity to pay entitlements when the entity is wound up and its employees made redundant;

•

a company officer intentionally enters into a transaction that would avoid the payment of that company's employee entitlements, but ultimately the transaction fails to achieve the intended result and no entitlements are avoided; and

•

third parties (for example, pre-insolvency advisors) intentionally procure a transaction to help the company avoid the payment of employee entitlements when the entity is wound up.

Who the Part can apply to

2.16 To provide certainty, the amendments in the Bill clarify that the Part can apply to:

•

a company;

•

officers of that company;

•

other persons involved in the management of that company prior to it entering winding up; and

•

a range of additional parties, depending on the facts of the relevant case.

2.17 Additionally, the Bill provides that section 79 of the Corporations Act applies to capture those involved in contraventions of the civil penalty provisions, mirroring the application of Part 2.4 of the Criminal Code Act 1995 (Cth) to the criminal offence provisions.

An entitlement of an employee need not be owed to the employee

2.18 Subsection 596AA(2A) specifies that employee entitlements need not be owed directly to an employee of a company to still be within scope of the protections provided by the Part. [Schedule 1, item 6, subsection 596AA(2)]

2.19 Subsection 596AA(2A) lists four scenarios where entitlements need not be owed to an employee but may be owed to someone else and are still protected by the Part. These examples are not an exhaustive list of scenarios.

2.20 Paragraph 596AA(2A)(a) outlines that an amount owed to an employee's dependants is an entitlement protected by the Part. This could for example include amounts an employee has compulsorily deducted from their salary to satisfy child support obligations, or payments made to the employee's dependants by the company as a result of injury compensation payable to the employee. [Schedule 1, item 6, paragraph 596AA(2A)(a)]

Example 2.1

Under the Child Support (Registration and Collection) Act 1988 (Cth), Mike's employer, Kangaroo Museum Pty Ltd, is obliged to collect amounts from Mike's wages to meet his child support obligations for his daughter Elizabeth.

Corey, the owner of Kangaroo Museum Pty Ltd, withholds the amounts from Mike's salary but does not pay those amounts to the Department of Human Services. Soon afterwards, the Court orders Kangaroo Museum Pty Ltd to be wound up.

Though the amounts of Mike's child support obligations are legally payable to the Department of Human Services by Kangaroo Museum Pty Ltd, this does not prevent those unpaid amounts being employee entitlements protected by Part 5.8A.

2.21 Paragraph 596AA(2A)(b) further outlines that a superannuation contribution which is payable to a superannuation fund by an employee's corporate employer, is an entitlement protected by the Part. Such contributions could include compulsory superannuation contributions payable by the corporate employer, or voluntary additional superannuation contributions of the employee deducted from their salary by the employer but not remitted to a fund. [Schedule 1, item 6, paragraph 596AA(2A)(b)]

2.22 Paragraphs 596AA(2A)(c) and (d) clarify that outstanding employee entitlements that are owed by the employer, and which are subsequently paid to employees by the Commonwealth (for example, under the FEG scheme) or paid by another party (for example, an employer representative body), will not impact the protections provided by the Part for those entitlements which remain unpaid by the company. [Schedule 1, item 6, paragraphs 596AA(2A)(c) and (d)]

2.23 Payments made directly to the employees by the Commonwealth or another entity for some or all of their outstanding employee entitlements, does not absolve relevant persons from the consequences of possible contravention of the Part, or reduce the recovery options available to parties for payment of the entitlements that the company has not paid.

Example 2.2

Pluto Beach Pty Ltd has 100 employees. Mark, the owner of Pluto Beach Pty Ltd, transfers all the assets of the company to another entity, and soon after makes all the employees redundant.

The former employees' total unpaid employee entitlements (including redundancy payments) are $5 million. The company does not have any funds to pay the outstanding amount, so the company is wound up.

All the employees make applications under the FEG scheme for payment of their outstanding entitlements, of which $4 million is paid by the scheme.

Even though the $4 million of outstanding entitlements of the company are no longer payable in liquidation to the employees, this has no impact on the potential actions which the liquidator or relevant Commonwealth agencies (exercising the rights of the employees) may take under the Part.

2.24 Finally, subsection 596AA(2) is amended to remove wording relating to employee entitlements not needing to be owed to employees, as it is now reflected in subsection 596AA(2A). [Schedule 1, item 5, subsection 596AA(2)]

Section 596AB: Relevant agreements or transactions that avoid employee entitlements - offence provision

2.25 Amendments have been made to the heading of subsection 596AB to modernise language and better express the criminal offence provision. [Schedule 1, item 7, heading for section 596AB]

Subsection 596AB(1) - primary intention provision

2.26 The amendments made to subsection 596AB(1) modernise the criminal offence provision to simplify its language and clarify its operation. The key amendments are:

•

the criminal offence is no longer expressed in the negative; and

•

the physical and fault elements of the offence have been expressed in plain-English, so that it is easier to understand the physical and fault elements that apply.

[Schedule 1, item 8, subsection 596AB(1)]

2.27 The modernised criminal offence uses the same two limbs contained in the existing provision, but adds the additional term 'avoiding' into the first limb to align this with the reforms' broader objects. It is a criminal offence for a person to enter into a relevant agreement or transaction with the intention of:

•

avoiding or preventing the recovery of entitlements of employees of a company; or

•

significantly reducing the amount of the entitlements of employees that can be recovered.

[Schedule 1, item 8, paragraphs 596AB(1)(a) and (b)]

2.28 The first limb is aimed at addressing those circumstances where relevant agreements or transactions are entered into with the deliberate aim of avoiding or preventing the payment of the entitlements of the employees of a company.

2.29 For example, transferring the assets out of the company which could have been used to help pay the employee entitlements, is a way of avoiding or preventing the payment of the entitlements.

2.30 The second limb is aimed at addressing circumstances where relevant agreements or transactions are entered into that significantly reduce the amount of a company's employee entitlements which can be recovered.

2.31 The term 'significant' is intended to have its ordinary meaning and will be determined by the circumstances of each case. Broadly speaking, a 'significant' reduction in the entitlements of employees may:

•

require a material or substantial reduction in the amount of the entitlements that can be recovered;

•

involve consideration of the quantum of the reduction as well as the proportionate size of the reduction produced; and

•

be determined solely based on the quantum of the reduction, in certain circumstances.

Example 2.3

Mark, the owner of Pluto Beach Pty Ltd, transfers $1 million of assets to another entity. Soon afterwards, he makes all 100 of the company's employees redundant, who are then owed $5 million in employee entitlements.

The company eventually enters into liquidation. The amount available to pay the outstanding entitlements after the asset transfer was zero.

The assets which were transferred may have been able to pay for 20 per cent of the outstanding entitlements.

In the circumstances of the case, this transfer significantly reduces the entitlements that can be recovered. This is determined based on the relative percentage (being 20 per cent of the amount owed to the employees), as well as its quantum (which is $1 million).

2.32 Additionally, while an individual agreement or transaction may not itself produce a 'significant reduction' or fully avoid or prevent the recovery of employee entitlements, existing subsection 596AB(3) allows an agreement or transaction to be considered contextually as part of a series or combination of agreements and transactions which produces a 'significant reduction' or that avoid or prevent recovery.

2.33 Contravention of the offence provision does not require the intention to be the sole or dominant purpose of the transaction. Instead, the provision is contravened if the person has an intention:

•

which includes the relevant intention;

•

which is one of a number of other intentions; or

•

where the intention to prevent or avoid, or significantly reduce, the entitlements is subsidiary to, or a minor part of, a different primary intention.

[Schedule 1, item 8, subsection 596AB(1)]

Subsection 596AB(1A) - primary recklessness provision

2.34 Subsection 596AB(1A) extends the fault element necessary to contravene the criminal offence provision to include a person who enters into a relevant agreement or transaction that avoids, prevents the recovery of, or significantly reduces the amount that can be recovered of, employee entitlements where the person is 'reckless' as to those possible outcomes. [Schedule 1, item 8, section 596AB(1A)]

2.35 Subsection 596AB(1A) uses the same two limbs that are used in subsection 596AB(1) to outline the conduct that will contravene the section. These limbs are intended to be consistently defined with subsection 596AB(1). Additionally, the term 'significantly' has the same meaning as in subsection 596AB(1).

2.36 'Recklessness' with respect to a result, is defined in the schedule to the Criminal Code Act 1995 (Cth) as a person being aware of a substantial risk that a result will occur and, having regard to the circumstances known to the person, it is unjustifiable to take that risk.

2.37 This definition notes that the question of whether taking a risk in the circumstances is unjustifiable, is one of fact.

2.38 Further, as recklessness is the fault element for the physical element in subsection 596AB(1A), proof of intention, knowledge or recklessness will satisfy that fault element.

2.39 As such, in the context of subsection 596AB(1A), a person who enters into a relevant agreement or transaction will be reckless if they are aware that there is a substantial risk that entering into a relevant agreement or transaction will avoid or prevent the recovery of, or significantly reduce the recoverable amount of, employee entitlements, and doing so is unjustifiable in the circumstances.

Example 2.4

Susan, director and sole shareholder of Race Vehicles Pty Ltd, enters into a transaction which transfers all the liquid assets of the company (valued at $5 million) and some of its debts, to another company, at a significantly undervalued price.

Soon after, Race Vehicles Pty Ltd is wound up. All the employees of Race Vehicles Pty Ltd are made redundant. The unpaid employee entitlements are $3 million.

Before entering into the transaction, Susan was aware that transferring the assets from the company would mean the company would be unable to pay its employee entitlements if the employees were made redundant. Susan was aware of this substantial risk and made the decision to proceed with the transaction.

In these circumstances, Susan is reckless as to the result and could be prosecuted for contravening subsection 596AB(1A).

Subsections 596AB(1B) and 596AB(1C) - specific offence provisions applying to company officers

2.40 The Bill introduces two company officer specific criminal offences into the Part, which operate similarly to subsections 596AB(1) (the primary intent provision) and 596AB(1A) (the primary recklessness provision). [Schedule 1, item 8, subsections 596AB(1B) and 596AB(1C)]

2.41 These provisions apply to company officers who cause the company of which they are an officer, to enter into relevant agreements or transactions that avoid or prevent the recovery of, or significantly reduce the amount that can be recovered of, employee entitlements.

2.42 Subsection 596AB(1B) makes it a criminal offence for a company officer to cause the company to enter into a relevant agreement or transaction where the officer has the intention of, or has intentions including the intention of:

•

avoiding or preventing the recovery of entitlements of employees of a company; or

•

significantly reducing the amount of the entitlements of employees that can be recovered.

2.43 Subsection 596AB(1C) makes it a criminal offence for a company officer to cause the company to enter into a relevant agreement or transaction to avoid or prevent the recovery of, or significantly reduces the amount that can be recovered of, employee entitlements where the company officer is 'reckless' as to those possible outcomes.

2.44 'Cause' is a broad term and includes 'procure' (see section 9 of the Corporations Act).

2.45 A company officer who had the relevant intent or who acted recklessly, and who caused, or made other persons enter into relevant agreements or transactions on behalf of the company, would contravene subsections 596AB(1B) or 596AB(1C).

2.46 The officer specific offences are necessary to ensure the Part operates effectively and as intended, as officers of the company are the persons responsible for the relevant agreement or transaction taking place, but are unlikely to be parties to the agreement or transaction themselves.

2.47 All the concepts that are used in subsections 596AB(1B) and 596AB(1C) are intended to be interpreted with the concepts used in subsections 596AB(1) and 596AB(1A).

2.48 Overall, subsections 596AB(1B) and 596AB(1C) are inserted by the Bill to ensure company officers who act in the manners described, are held responsible for their actions and able to be sanctioned. The two new company officer provisions also enhance the deterrence effect of the Part.

Example 2.5

Alison, a company director of Space Pty Ltd, wants to transfer the intellectual property and other assets of her company to a new company, as the debt of Space Pty Ltd is too high.

After undertaking the transfers to her new company, she intends to make redundant her 50 employees and then have the company wound up, to avoid the entitlements. This will assist with lowering her debt obligations.

She advises Mark, an employee of the company, what she wants to do and instructs Mark to transfer the intellectual property and other assets, and then make all the staff redundant. Mark signs an agreement as an agent of the company, and enters into the transactions which Alison wants, making the 50 staff redundant.

The FEG scheme ends up advancing $3 million for the outstanding employee entitlements of Space Pty Ltd.

As Alison caused the company to enter into the relevant agreements as a result of instructing Mark, and had the intention of avoiding the employee entitlements of Space Pty Ltd, she has contravened section 596AB(1B).

Circumstances that affect the operation of the offence provisions

Subsection 596AB(2) - company does not need to be a party to the agreement or transaction

2.49 Subsection 596AB(2) clarifies that the primary intent and recklessness offences can apply even if the company which owes the employee entitlements to the employees is not a party to the relevant agreement or transaction. [Schedule 1, item 8, subsection 596AB(2)]

2.50 This provision ensures the offences operate effectively to capture different sharp corporate practices, for example, where other entities in a corporate group enter into agreements that impact the employee entitlements of another company in the group.

2.51 Commonly corporate groups are managed by the same controlling minds. Clarifying that the criminal offence provisions apply to a company that owes employee entitlements, but was not party to a transaction will address any risk that corporate groups could be used as a vehicle to frustrate the operation of the criminal offence provisions, and cause unpaid and outstanding employee entitlements to be funded by the FEG scheme.

Example 2.6

Chan Pty Ltd and Yip Pty Ltd are two companies that are part of a corporate group. Chan Pty Ltd holds the majority of the group's assets. Yip Pty Ltd employs all of the group's workers.

Eugene, the director of Chan Pty Ltd, enters into a transaction for Chan Pty Ltd to sell all of its assets to Parker Pty Ltd, a company that is not part of the corporate group, with the intention of avoiding Yip Pty Ltd having to pay outstanding employee entitlements.

Soon after the transaction, all the companies in the corporate group become insolvent and are wound up. Yip Pty Ltd owes $5 million of employee entitlements to its workers.

Eugene could be prosecuted for contravening the criminal offence provisions despite the fact that Yip Pty Ltd was not party to the transaction that transferred assets out of the corporate group.

Subsection 596AB(2A) - clarifying when the offences will still apply

2.52 Paragraph 596AB(2A)(a) provides that all the offence provisions will apply even where the relevant agreement or transaction has been approved by a court. This is because even if approved by a court, the agreements or transactions would have been entered into with the relevant intention or in circumstances where a person was reckless as to the possible results. [Schedule 1, item 8, paragraph 596AB(2A)(a)]

2.53 Paragraphs 596AB(2A)(b) and 596AB(2A)(c) specify that all the offence provisions are able to be contravened even where, despite the agreement or transaction, the employee entitlements are not ultimately avoided, prevented, or significantly reduced, or are able to be recovered, for example, because assets or compensation are recovered by the liquidator through the winding up process.

2.54 Paragraphs 596AB(2A)(b) and 596AB(2A)(c) are included to ensure that there is a strong deterrent in the law for those that attempt to avoid the payment of a company's employee entitlements or significantly reduce those entitlements that can be recovered, even if the attempt does not happen or is not ultimately successful. [Schedule 1, item 8, paragraph 596AB(2A)(b) and (c)]

Example 2.7

Kanya, a company director of Destruction Pty Ltd, intends to make the current employees of the company redundant next week. She has the company enter into a transaction with the intention of transferring the assets of the company (valued at $5 million) to another company, so that she can place the company into liquidation and the company does not have to pay its outstanding employee entitlements.

During the winding up the liquidator is able to recover sufficient assets and compensation to pay the outstanding employee entitlements. As a result, the transaction did not have its intended effect of avoiding employee entitlements. Kanya may still be prosecuted for an offence under subsection 596AB(1) as she entered into a transaction with the intent of avoiding the entitlements.

Subsection 596AB(2B) - Comprise or arrangement approved by a Court or DOCA

2.55 Subsection 596AB(2B) outlines that offence provisions do not apply to relevant agreements or transactions if they were entered into:

•

because a compromise or arrangement was approved by a Court under section 411 of the Corporations Act for the company that has outstanding employee entitlements; or

•

as a result of a DOCA executed by the company which has the outstanding employee entitlements.

[Schedule 1, item 8, subsection 596AB(2B)]

2.56 The purpose of excluding compromises and DOCAs from the operation of the offence provisions is to avoid undermining these mechanisms as legitimate options to rescue, reorganise or restructure a financially distressed business.

2.57 Without these defences, compromises and DOCAs that include agreements or transactions which result in, or may have the effect of, avoiding the recovery of employee entitlements, could be at risk of contravening the criminal offence provisions.

2.58 The provisions on compromises in the Corporations Act provide broad powers to a Court to manage the process of, and provide approval for, compromises. Due to this level of oversight, and its protections for creditors (which would include employee creditors), the criminal offence provisions do not need to apply to compromises.

2.59 The provisions on DOCAs in the Corporations Act protect employee entitlements (see sections 444DA and 444DB). As there are already specific employee entitlement protections, the criminal offence provisions do not need to apply to DOCAs.

2.60 However, the DOCA defence is not intended to apply to a DOCA executed by another company that avoids or prevents the payment of, or significantly reduces the amount of, the employee entitlements that can be recovered of the company that has the outstanding entitlements.

2.61 The defendant bears the evidential burden in relation to the matters in subsection 596AB(2B). This is appropriate because it would be peculiarly within the knowledge of the defendants (such as officers of the company or other persons employed by the company), as to whether a relevant agreement and transaction was:

•

entered into because a compromise or arrangement was approved by a Court under section 411 for the company that has the outstanding employee entitlements; or

•

entered into for the purposes of effecting a DOCA which had been executed earlier by the company which has the outstanding employee entitlements.

2.62 The facts and evidence necessary to establish the matters in subsection 596AB(2B) would be peculiarly within the knowledge of defendants because:

•

they would almost always be an officer of the company, or have a strong connection to the company;

•

they would have been involved in a court process related to the compromise or arrangement;

•

they would be parties to a DOCA; and

•

they would have access to company records and documents that would establish a compromise was proposed and approved, or a DOCA was executed.

2.63 It would also be significantly more difficult and costly for the prosecution to disprove the fact that the relevant agreement or transaction is not a compromise or arrangement approved by the Court or a result of a DOCA executed by the company.

Subsection 596AB(2C) - Liquidators and provisional liquidators of the company

2.64 To avoid the inappropriate application of the criminal offence provisions to liquidators and provisional liquidators of a company, when such persons cause relevant agreements and transactions to be entered into in the course of winding up the company, subsection 596AB(2C) specifies that the primary recklessness offence and the company officer specific recklessness offence will not apply to liquidators and provisional liquidators. [Schedule 1, item 8, subsection 596AB(2C)]

2.65 Liquidators and provisional liquidators undertake a range of statutory duties when they are appointed to wind up a company. Liquidators' duties are to wind up and finalise the affairs of the company. Provisional liquidators can be appointed by a court in certain circumstances after a winding up application is filed, and have many of the same functions and powers as liquidators.

2.66 In carrying out their statutory duties, liquidators and provisional liquidators may cause the company to enter into agreements and transactions, for example, in realising the assets of and winding up the company.

2.67 The application of the recklessness offence provisions to the activities of liquidators could inappropriately impede their function in the winding up of a company. It is not intended that the recklessness offence provisions will apply to relevant agreements and transactions entered into in the course of winding up the company by a liquidator or provisional liquidator in the mentioned circumstances. The Government's 2016 reforms to the regulation of insolvency practitioners provide a sufficient safeguard to misconduct (see Schedule 2 to the Corporations Act) and appropriate remedies if misconduct occurs.

2.68 However, if a liquidator or provisional liquidator entered into agreements or transactions with an intention to avoid or prevent the recovery of entitlements of employees, or with an intention to significantly reduce the employee entitlements of a company which could be recovered, it would be appropriate for the intention criminal offence provisions to apply.

2.69 A liquidator or provisional liquidator also bears the evidential burden for the matters in paragraph 596AB(2C). This is appropriate because it would be peculiarly in a liquidator or provisional liquidator's knowledge as to why and when a relevant agreement or transaction was entered into in the course of the company's winding up. It would also be significantly more difficult and costly for the prosecution to disprove the fact that the relevant agreement or transaction was not entered into in the course of winding up the company.

Clarification and consequential amendments

2.70 Amendments have been made to subsection 596AB(3) to insert a note that clarifies what a relevant agreement may be. [Schedule 1, item 9, note to section 596AB(3)]

2.71 Subsection 596AB(4) has been repealed and inserted into subsection 596AC(10). [Schedule 1, item 10, subsection 596AB(4)]

Penalties for contravening the criminal offence provisions

2.72 Schedule 3 of the Corporations Act is amended to specify that subsections 596AB(1), 596AB(1A), 596AB(1B) and 596AB(1C) are criminal offence provisions. [Schedule 1, item 18, table item 145 in Schedule 3]

2.73 For an individual, the maximum penalty for contravening the criminal offence provisions are either or both of the following:

•

imprisonment for 10 years;

•

a fine the greater of the following:

-

4,500 penalty units; or

-

if the court can determine the total value of the benefits that have been obtained by one or more persons and are reasonably attributable to the commission of the offence - three times that total value;

2.74 For a body corporate, the maximum penalty for contravening the criminal offence provisions is:

•

a fine which is the greatest of the following:

-

45,000 penalty units;

-

if the court can determine the total value of the benefits that have been obtained by one or more persons and are reasonably attributable to the commission of the offence - three times that total value; or

-

10 per cent of the body corporate's annual turnover during the 12 month period ending at the end of the month in which the body corporate committed or began committing the offence.

2.75 The enhanced penalties which have been introduced reinforce the seriousness of the offences in question and aim to deter persons from engaging in these egregious behaviours.

Application of extensions of criminal responsibility to the Part's offence provisions

2.76 The extensions of criminal responsibility provisions contained in Part 2.4 of the schedule to the Criminal Code Act 1995 (Cth) apply to the criminal offence provisions.

2.77 The application of Part 2.4 means, amongst other things, that any person who is an accessory to the commission of any of the offences through aiding, abetting, counselling or procuring the commission of that offence, will be taken to have committed that offence.

Section 596AC: Entering into relevant agreements or transactions to avoid employee entitlements - contravention and civil penalty

2.78 The Bill repeals section 596AC and inserts a new civil penalty provision.

Subsection 596AC(1) - primary civil penalty provision

2.79 Subsection 596AC(1) specifies that a person contravenes the provision if:

•

they enter into a relevant agreement or transaction; and

•

the person knows, or a reasonable person in the position of the person would know, that the relevant agreement or transaction is likely to:

-

avoid or prevent the recovery of the entitlements of the employees; or

-

significantly reduce the amount of the entitlements that can be recovered.

2.80 Paragraph 596AC(1)(a) refers to the extended meaning of the terms 'relevant agreements and transactions' in section 596AB(3). This definition is used to ensure the criminal offence provisions and civil penalty provision apply to the same types of agreements and transactions. [Schedule 1, item 11, paragraph 596AC(1)(a)]

2.81 Paragraph 596AC(1)(b) outlines the new objective test against which an assessment is made to determine if there has been a contravention of the subsection. This objective test assesses whether the person knows, or a reasonable person in the specific circumstances of that person would have known or would be expected to have known, that the relevant agreements or transactions are likely to:

•

avoid or prevent the recovery of the entitlements of the employees; or

•

significantly reduce the amount of the entitlements of the company that can be recovered.

[Schedule 1, item 11, paragraph 596AC(1)(b)]

Example 2.8

Sally, a company director of Kitchen Rebuild Pty Ltd, is aware her company is facing financial difficulties. There are 30 employees currently working for the company.

Sally starts reorganising the company, and transfers most of the inventory of the company (worth $3 million), which is unencumbered, to another company she owns, for no value.

She then makes the 30 employees redundant and the company is wound up. There are no funds to pay the outstanding employee entitlements, which amount to $1.5 million. Sally states she did not know that taking this action would avoid or prevent the recovery of the entitlements of the employees.

In this case, a reasonable director in Sally's position would have known that transferring the only assets available to the company to pay employees entitlements, would avoid the recovery of those entitlements.

In this case, Sally has contravened subsection 596AC(1).

2.82 For the purposes of the objective test, it is intended that the term 'reasonable person' uses its common law definition.

2.83 Paragraph 596AC(1)(b) uses the same two limbs used in the offence provisions to outline the elements of the contravention. This construction is used to ensure:

•

that the criminal offence provisions and civil penalty provision apply to the same types of behaviours, but with different levels of culpability; and

•

consistency with the types of behaviours which are intended to be deterred, or will be sanctioned if they occur.

2.84 Additionally, the term 'significantly' used in subparagraph 596AC(1)(b)(ii) is intended to take its meaning depending on the circumstances of the relevant case. The term is to be interpreted consistently with other provisions in this Bill that contain the term.

Example 2.9

George, a company director of Space Fireworks Pty Ltd, is looking at expanding his business. He wants to take over a competitor and hire additional staff.

He currently has 50 employees working for his company, who have accrued employee entitlements of $3 million. He hires another 50 employees and buys out his main competitor for $5 million, using most of the cash in his business and by taking out an additional loan.

Six months after buying his main competitor, there is a major downturn in the fireworks market. George's business quickly begins losing money and the company is unable to meet its loan commitments. His financier has the business wound up six months later. There is no money now available to pay the employee entitlements, which now total $5 million.

The liquidator of Space Fireworks Pty Ltd is examining whether to bring an action under subsection 596AC(1).

In this case, George did not know, and a reasonable person in George's position would not have known, that buying the competitor's business was likely to avoid or prevent the recovery of the employee entitlements of Space Fireworks Pty Ltd, as the downturn was not foreseeable and George was aiming to expand his business.

George has not contravened subsection 596AC(1).

2.85 Finally, the note to subsection 596AC(1) states that subsection 596AC(1) is a civil penalty provision. [Part 1 of Schedule 1, item 11, note to subsection 596AC(1)]

2.86 The introduction of the civil penalty provision will strengthen enforcement options available for contraventions of the Part.

2.87 The table in subsection 1317E(1) is amended to list subsection 596AC(1) as a civil penalty provision. Civil penalty provisions within the Corporations Act allow courts to order individual defendants to pay penalties of up to $200,000 where there has been a contravention of a relevant civil provision. [Schedule 1, item 17, subsection 1317E(1)]

Subsection 596AC(2) - accessorial liability for those involved in contravention of subsection 596AC(1)

2.88 Any person who is involved in contraventions of subsection 596AC(1), contravenes subsection 596AC(2). This provision has been inserted to capture those who are involved in contraventions of subsection 596AC(1). Section 79 of the Corporations Act defines 'involved'. [Schedule 1, item 11, paragraph 596AC(2)]

2.89 Inserting new subsection 596AC(2) allows such accessories to be captured by the various sanctions and personal liability consequences in the Part. This includes the consequences for contravening a civil penalty provision as subsection 596AC(2) is, itself, a civil penalty provision. [Schedule 1, item 11, note to subsection 596AC(2)]

Example 2.10

Vivek is an unregistered adviser who provides restructuring advice to businesses which are in trouble.

Vivek advises Sandya, the owner of Zobee Pty Ltd, about transactions she can use which would avoid her needing to pay any of the entitlements of her employees. Vivek outlines a plan to Sandya which includes transferring the assets to another business at below market value and making all the employees redundant. Sandya carries out the plan and all the employees' entitlements are avoided.

Sandya has contravened subsection 596AC(1). In this case, Vivek is involved in Sandya's contravention and has therefore contravened subsection 596AC(2).

2.90 The table in subsection 1317E(1) is amended to list subsection 596AC(2) as a civil penalty provision. [Schedule 1, item 17, subsection 1317E(1)]

Subsection 596AC(3) -civil penalty provisions capturing company officers

2.91 The Bill introduces a specific civil penalty provision which brings company officers within the operation of the Part. The provision replicates the operation of subsection 596AC(1). [Schedule 1, item 11, subsection 596AC(3)]

2.92 Subsection 596AC(3) specifies that a person who is a company officer contravenes the provision if:

•

the person causes the company to enter into a relevant agreement or transaction; and

•

the company officer knows, or a reasonable person in the position of the company officer would know, that the relevant agreement or transaction is likely to:

-

avoid or prevent the recovery of the entitlements of the employees; or

-

significantly reduce the amount of the entitlements that can be recovered.

2.93 'Cause' is defined in section 9 of the Corporations Act and includes the term procure.

2.94 This specific civil contravention provision for company officers ensures that those company officers who act in the manner described, are able to be made liable and sanctioned for their actions.

Example 2.11

Veronica, a company director of Crazy Arts Pty Ltd, intends to transfer all the assets of her company to her personal family trust to avoid paying the company's creditors. She is aware that doing this will avoid the entitlements of the employees if they are made redundant and the company is wound up.

She currently has 100 employees working for her.

She advises Ben, the company secretary of Crazy Arts Pty Ltd, of what she wants to do. Ben is aware of the result for the employees. He instructs Susan, an employee of Crazy Arts Pty Ltd, to have the company enter into the relevant transactions and informs her of Veronica's aims.

Afterwards, all the employees are made redundant and a liquidator is appointed to wind up the company. The liquidator has indicated employees are not likely to receive any distribution of the company's assets.

In this case, both Veronica and Ben would contravene subsection 596AC(3) as they are company officers and caused the company to enter into the relevant transactions which are likely to avoid the employee entitlements.

2.95 The concepts in subsection 596AC(3) are intended to be interpreted consistently with the concepts used in subsections 596AC(1).

2.96 Subsection 596AC(3) is also a civil penalty provision.

2.97 The table in subsection 1317E(1) is amended to list subsection 596AC(3) as a civil penalty provision. [Schedule 1, item 17, subsection 1317E(1)]

Subsection 596AC(4) - accessorial liability for those involved in contravention of subsection 596AC(3)

2.98 Subsection 596AC(4) outlines that any person who is involved in contraventions of subsection 596AC(3), contravenes subsection 596AC(4). [Schedule 1, item 11, paragraph 596AC(4)]

2.99 Inserting new subsection 596AC(4) ensures that accessories are captured by the various sanctions and personal liability consequences in the Part. This includes the consequences for contravening a civil penalty provision as subsection 596AC(4) is, itself, a civil penalty provision.

2.100 The table in subsection 1317E(1) is amended to list subsection 596AC(4) as a civil penalty provision. [Schedule 1, item 17, subsection 1317E(1)]

Example 2.12

Following on from the previous example, Susan has contravened subsection 596AC(4) as she has been knowingly involved in the contraventions by Veronica and Ben.

Application of the civil penalty provisions in certain circumstances

Subsection 596AC(5) - company does not need to be a party to the agreement or transaction

2.101 Subsection 596AC(5) outlines that the primary civil penalty provisions can apply even if the company which owes the employee entitlements to the employees is not a party to the relevant agreement or transaction. This provision operates in the same way as subsection 596AB(2). [Schedule 1, item 11, subsection 596AC(5)]

Subsection 596AC(6) -when the civil penalty provisions will still apply

2.102 Paragraph 596AC(6)(a) outlines that the civil penalty provisions will apply even where the relevant agreement or transaction has been approved by a court. As such, the court's approval will not create immunity from contravention of the civil penalty provisions. [Schedule 1, item 11, paragraph 596AC(6)(a)]

2.103 Paragraph 596AC(6)(b) and (c) states that the civil penalty provisions will all still apply even where, despite the agreement or transaction, the employee entitlements are not ultimately avoided, prevented, or significantly reduced, or employee entitlements are able to be recovered, for example, because assets or compensation are recovered by the liquidator through the winding up process. [Schedule 1, item 11, paragraphs 596AC(6)(b) and (c)]

2.104 These provisions operate in a similar way to paragraphs 596AB(2A)(a), (b), and (c).

Paragraph 596AC(7) - When the civil penalty provisions do not apply

2.105 Paragraph 596AC(7)(a) outlines that all the civil penalty provisions do not apply to relevant agreements or transactions if they were entered into:

•

because a compromise or arrangement was approved by a Court under section 411 of the Corporations Act for the company that has outstanding employee entitlements; or

•

as a result of a DOCA executed by the company which has the outstanding employee entitlements.

[Part 1 of Schedule 1, item 11, paragraph 596AC(7)(a)]

2.106 These defences operate in a similar way, and have been included in the amendments for a similar reason, to the defences to the criminal offence provisions contained in subsection 596AB(2B), and explained above.

2.107 To avoid the inappropriate application of the civil penalty provisions to liquidators and provisional liquidators of a company, paragraph 596AC(7)(b) specifies that the civil penalty provisions do not apply when such persons cause relevant agreements and transactions to be entered into in the course of winding up the company. [Schedule 1, item 11, paragraph 596AC(7)(b)]

2.108 This defence operates in a similar way, and has been included in the amendments for a similar reason, to the defence to the criminal offence provisions contained in subsection 596AB(2C), and explained above.

Section 596AC(8) - Person who relies on subsection 596AC(7) has the evidential burden

2.109 Subsection 596AC(8) outlines that persons who wish to rely on the exceptions outlined in subsection 596AC(7) bear an evidential burden in relation to that matter. [Schedule 1, item 11, subsection 596AC(8)]

2.110 Subsection 596AC(11) defines what evidential burden means in section 596AC. In relation to a matter, it is the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist. [Schedule 1, item 11, subsection 596AC(11)]

2.111 The defendant bears the evidential burden in relation to the matters in subsection 596AC(7). This is appropriate in respect of compromises and DOCAs because it would be peculiarly in the knowledge of defendants (such as officers of the company or other persons employed by the company) as to whether relevant agreements and transactions were:

•

entered into because a compromise or arrangement was approved by a Court under section 411 for the company that has the outstanding employee entitlements; or

•

entered into for the purposes of effecting a DOCA which had been executed earlier by the company which has the outstanding employee entitlements.

2.112 The facts and evidence necessary to establish the matters in paragraph 596AC(7)(a) would be peculiarly within the knowledge of defendants because:

•

they would almost always be an officer of the company, or have a strong connection to the company;

•

they would have been involved in a court process related to the compromise or arrangement;

•

they would be parties to a DOCA; and

•

they would have access to company records and documents that would establish a compromise was proposed and approved, or a DOCA was executed.

2.113 It would also be significantly more difficult and costly for the prosecution to disprove the fact that the relevant agreement or transaction is not a compromise or arrangement approved by the Court or a result of a DOCA executed by the company.

2.114 A liquidator or provisional liquidator also bears the evidential burden for the matters in paragraph 596AC(7)(b). This is also appropriate because it would be peculiarly in a liquidator or provisional liquidator's knowledge as to why and when a relevant agreement or transaction was entered into in the course of the company's winding up. It would also be significantly more difficult and costly for the prosecution to disprove the fact that the relevant agreement or transaction was not entered into in the course of winding up the company.

Subsection 596AC(9) - Proceedings may only be begun after liquidator appointed

2.115 Subsection 596AC(9) specifies that relevant proceedings under section 1317E for a contravention of the civil penalty provisions can only be begun after a liquidator has been appointed to the company. [Schedule 1, item 11, subsection 596AB(9)]

2.116 This aims to ensure that actions for contravention of the civil penalty provisions and for compensation for loss or damage (which is linked to contravention of the civil penalty provision) are only commenced once the impact on employee entitlements becomes evident as part of the liquidation process and not while a company is still actively trading or restructuring its affairs.

Subsection 596AC(10) - contravention by incurring a debt

2.117 It is possible that a relevant agreement or transaction in contravention of any of the civil penalty provisions could also result in the company trading while insolvent, in contravention of section 588G of the Corporations Act. To ensure that there is no double recovery for loss due to overlapping actions under the Corporations Act, a set of minor consequential amendments are contained in the Bill.

2.118 First, subsection 596AC(10) outlines that if section 596AC is contravened by a person incurring a debt within the meaning of section 588G, the debt which is incurred and the contravention are 'linked'. [Schedule 1 item 11, subsection 596AC(10)]

2.119 Second, the existing definition of 'linked' in section 9 of the Corporations Act is amended to account for changes made to the structure of section 596AC. [Schedule 1, item 1, section 9]

2.120 Third, paragraph 588N(b) is amended to prevent double recovery of the 'linked' amount if there was an action under section 596ACA or under section 588M. [Schedule 1, item 2, paragraph 588N(b)]

Section 596ACA: Person who contravenes section 596AC liable to compensate for loss

2.121 The Bill repeals the existing compensation provision and replaces it with a modernised compensation provision. The new civil compensation provision no longer interacts with the Part's criminal offence provision, and reduces confusion about how the provision is intended to operate.

2.122 Under the civil compensation provisions, compensation for loss or damage suffered by the employees of the company due to the impact of relevant agreements or transactions can be awarded where the persons who entered those agreements or transactions have contravened the civil penalty provisions, and a liquidator has been appointed to the company. [Schedule 1, item 11, subsection 596ACA(1)]

2.123 A person may be liable to pay compensation, whether or not a Court has made a declaration of contravention under Part 9.4B of the Corporations Act, or the person is ordered to pay a penalty as a result of that declaration. [Schedule 1, item 11, paragraph 596ACA(2)(a)]

Example 2.13

Bob, the owner of Apex Cleaning Pty Ltd and Sarah, a director of that company, arrange a series of transactions which result in an asset being sold to a related entity for below market value consideration.

Soon after, Apex Cleaning Pty Ltd enters into liquidation. All 100 employees are made redundant. The unpaid employee entitlements when the company is wound up are $3 million.

The series of transactions entered into contravenes section 596AC(1).

ASIC initiates civil penalty proceedings against Bob and Sarah, with the Court declaring a contravention and ordering a civil penalty of $200,000 to be paid by both Bob and Sarah.

Even though the Court has penalised both Bob and Sarah, this does not prevent relevant parties taking action under section 596ACA to seek compensation from Bob and Sarah for the $3 million of unpaid employee entitlements.

2.124 Further, a person may still be liable to pay compensation notwithstanding that the person has been convicted of an offence under section 596AB. [Part 1 of Schedule 1, item 11, paragraph 596ACA(2)(b)]

Example 2.14

Bob is instead convicted of the criminal offence of entering a transaction with the intention of preventing the recovery of the entitlements of employees. He is penalised 4,500 penalty units.

Bob's conviction does not prevent relevant parties taking action under section 596ACA to seek compensation from Bob. Relevant parties would still need to prove Bob contravened subsection 596AC(1) or subsection 596AC(3).

2.125 Additionally, a person may still be liable to pay compensation under section 596ACA even after the relevant company (whose employees suffered the loss or damage) has been wound up. [Schedule 1, item 11, paragraph 596ACA(2)(c)]

2.126 The company's liquidator is able to take action against relevant persons for compensation for the contravention of the civil penalty provisions, where relevant agreements or transactions caused loss or damages to the employees. Compensation in such cases will be payable to the company for distribution by the liquidator in accordance with the usual priorities in section 556 of the Corporations Act. [Schedule 1, item 11, subsection 596ACA(3)]

2.127 The compensation that may be payable is the amount of the loss or damage which the employees of the company suffered because of the relevant agreement or transaction that was entered into by persons, or because of actions taken to give effect to the relevant agreement or transaction.

2.128 The maximum amount of loss or damage that could be recovered by a liquidator under section 596ACA is equal to the total amount of outstanding employee entitlements when the company enters winding-up. This will occur where relevant agreements or transactions are entered into by persons, or because of actions taken to give effect to those relevant agreements or transactions, which result in the employee entitlements of the company being avoided or not being paid.

2.129 Employees of the company are, in certain circumstances also able to seek compensation against relevant persons for contravention of the civil penalty proceedings. In such cases, the compensation payable for loss or damage an employee suffers will be a debt due to the employee. [Schedule 1, item 11, subsection 596ACA(4)]

2.130 Any recoveries made by the employee will be deducted from amounts that the employee has proved in the liquidation of the company. [Schedule 1, item 11, subsection 596ACA(5)]

Example 2.15

Sally is an employee of Apex Cleaning Pty Ltd who was made redundant when the company was wound up. Sally believes Bob, the company's owner, entered into a range of transactions to avoid the company's employee entitlement liabilities.

Sally complies with the formalities for bringing action under section 596ACA, after which she obtains judgment against Bob for the full outstanding employee entitlement amount.

Sally recovers her outstanding employee entitlements, which are paid to her. Her proof of debt against the company (for her outstanding employee entitlements) is reduced to zero.

2.131 Proceedings under section 596ACA may only be begun within six years after the company begins to be wound up. [Schedule 1, item 11, subsection 596ACA(6)]

Sections 596AD and 596AE: minor amendments

2.132 A consequential amendment is made to section 596AD to reflect the amended sections 596AC and 596ACA. [Schedule 1, item 12, section 596AD]

2.133 Paragraphs have also been inserted at the end of section 596AD to address issues of double recovery created by other amendments contained in this Bill. [Schedule 1, item 13, section 596AD]

2.134 The heading to the section 596AE is also amended to reflect the amendments to the civil compensation provision. [Schedule 1, item 14, section 596AE]

2.135 Similarly, references to the previous section 596AC in section 596AE have been updated to reference section 596ACA. [Schedule 1, item 15, section 596AE]

Sections 596AF, 596AG and 596AH: Proceedings for compensation

2.136 Sections 596AF, 596AG, 596AH and 596AI have been repealed and replaced with new provisions that deal with proceedings for compensation.

Section 596AF - Proceedings for compensation

Subsection 596AF(1) - Who can commence proceedings for compensation

2.137 The relevant parties who can bring a recovery action for loss or damage under section 596ACA are:

•

the Commissioner of Taxation;

•

the Fair Work Ombudsman;

•

the Secretary of the Department administering the Fair Entitlements Guarantee Act 2012 (Cth); and

•

employees of the company.

[Schedule 1, item 16, subsection 596AF(1)]

2.138 The parties who may begin compensation proceedings have been expanded to enhance the deterrent effect, and recovery potential, of the Part. Having a wider range of parties with an ability to take action will encourage greater usage of the civil compensation provision, which is expected to lead to enhanced recoveries of employee entitlements. It also addresses the circumstances where a liquidator cannot commence recovery actions due to insufficient assets in the company, for example, as a result of phoenix activity.

2.139 Employees can only recover their own loss or damage while the three government bodies can recover the loss or damage for all the employees of the company. The government bodies are therefore taking an action equivalent to that which the company's liquidator can take.

2.140 Subsection 596AF(1) does not prevent the liquidator of the company taking recovery action under section 596ACA.

Subsections 596AF(2) and 596AF(3) - Liquidator or Court consent is required to proceed

2.141 Subsection 596AF(2) outlines that where a liquidator has been appointed to a company, any parties wishing to take civil recovery action need to obtain the liquidator's written consent or leave of the Court, to proceed. [Schedule 1, item 16, subsection 596AF(2)]

2.142 A liquidator has 30 days to respond in writing to a written request from any of the parties to begin compensation proceedings. [Schedule 1, item 16, paragraphs 596AF(3)(a) and (b)]

2.143 A Court can grant leave to a party to begin compensation proceedings where the liquidator has refused or not responded to a request, if it is satisfied it is appropriate to grant leave. [Schedule 1, item 16, paragraph 596AF(3)(b)]

2.144 In deciding whether it is appropriate to grant leave, the Court needs to give regard to:

•

whether the liquidator will begin proceedings under section 596ACA;

•

whether the liquidator has applied under section 588FF for a court order that a transaction was a voidable transaction, and this same transaction also contravened section 596AC or was part of a contravention of that section;

•

whether the liquidator has intervened in an application for a civil penalty order under section 588G in relation to insolvent trading;

•

whether the liquidator has begun proceedings under section 588M for recovery of compensation for loss due to insolvent trading, where the relevant transaction also contravenes the Part; and

•

any other matters the Court considers relevant.

[Schedule 1, item 16, paragraph 596AF(3)(c)]

Section 596AG - Events preventing compensation proceedings

2.145 Section 596AG outlines events that prevent government bodies and employees beginning civil compensation proceedings.

2.146 Subsection 596AG(1) outlines that the government bodies and employees of the company cannot begin civil compensation proceedings if the company liquidator has taken action in relation to the contravention. [Schedule 1, item 16, subsection 596AG(1)]

2.147 Subsection 596AG(2) specifies that an employee cannot begin civil compensation proceedings where one of the government bodies has commenced proceedings. The employee is prevented from taking such action because the government bodies would already be taking action on behalf of that employee, and all the other employees, to recover their loss or damage. [Schedule 1, item 16, subsection 596AG(2)]

Section 596AH - Joining parties to proceedings

2.148 Subsection 596AH(1) allows the three government bodies and any of the employees of the company to apply to the Court to be joined as a party to the liquidator's proceedings under section 596ACA. These parties can be joined to proceedings because they have an interest in the proceedings that are underway. [Schedule 1, item 16, subsection 596AH(1)]

2.149 Subsection 596AH(2) allows the other government bodies, an employee of the company to which the proceedings relate, and the company's liquidator, to apply to the Court to be joined to proceedings begun by a government body. Such parties can seek to join the proceedings, as they are interested in the proceedings that are underway. [Schedule 1, item 16, subsection 596AH(2)]

Application and transitional provisions

2.150 The provisions in Part 1 of Schedule 1 to the Bill will apply in relation to a relevant agreement or a transaction that is entered into on or after the commencement of the Bill. [Schedule 1, item 33, section 1647]