FEG letters spoiled Christmas for some

FEG lettersThe FEG recovery unit's please explain letters are a picnic invitation for lawyers
FEG recovery unit chief Henry Carr

Bad Santa: FEG recovery czar Henry Carr.

On December 19 last year the industrious litigators heading the Fair Entitlements Guarantee (FEG) Recovery Program got the two things they must’ve wanted most. A Commonwealth decree declaring their pilot program permanent, and more funding.

At around the same time, a number of liquidators received correspondence from the FEG Recovery team. Apparently the letters – authored SiN understands by Arnold Bloch Leibler – requested that the liquidators explain why they had used money raised from circulating security asset realisations to pay remuneration earned and general administrative expenses incurred in the winding up.

One source said that letters they’d seen contained assertions from FEG that the recipient liquidator “is not entitled to deduct general administrative expenses in the winding up from the fund created by the realisation of circulating assets”.

Further the letters stated that FEG reserved the right to access any legal advice a liquidator was relying on to reject FEG demands for monies.

It would’ve been an unwelcome Christmas present for the recipients but a source close to FEG said that receivers and liquidators need to get used to the recovery unit examining how they’d dealt with monies raised by circulating security asset realisations.

“FEG is getting more active than ever in looking at whether the practitioner’s obligation under sections 433 and 561 have been met,” the source said.

“Section 561 says basically that if there’s a shortfall in paying the employee entitlements then the circulating assets need to pay for the shortfall. Typically, insolvency practitioners say, ‘well, our fees have to come out first’,” the source said, adding that FEG was “reviewing files that go back as far as the GEERS days”.

SiN understands the recovery unit has had significant success recouping money paid out to cover employee entitlements paid out by the FEG scheme. One source said they’d been told the program, headed by a senior team including former Borrelli Walsh director Henry Carr and ex-Ferrier Hodgson director Janine Cole, had raked in around $60 million, much of it from banks and receivers. Correspondence from the pair apparently implies a ready willingness to litigate if settlement cheques are not dispatched expeditiously.

Carr did not respond to requests for comment but coincidentally, BRI Ferrier’s first Technical Insights paper for 2017 deals directly with the issue of whether, under section 561, a liquidator is able to claim priority for remuneration, costs and expenses ahead of employee entitlements. You can read it at: http://briferrier.com.au/news/under-section-561-corporations-act-is-the-liquidator-able-to-claim-priority-for-remuneration-costs-a

When contacted BRI’s Peter Krejci declined to comment other than to confirm that BRI had not received a pre-Christmas please explain letter. But perhaps this is because BRI is deep in the recovery unit’s good books?

West Australian sources close to the committee of inspection (COI) for failed construction firm AE&E have told SiN that BRI, which is receiver appointed, has handed over $6 million to Carr and Cole, presumably following assessment of obligations under section 433. It’s clearly been Christmas for some.

About the Author

Peter Gosnell
Sydney Insolvency News illuminates the practice of insolvency in Australia's largest city, highlighting the triumphs and failures of Sydney's registered practitioners and the accounting and legal professionals who work with them. SiN is produced by Peter Gosnell, former business editor and senior business reporter at The Daily Telegraph newspaper. During a decade-long career, your correspondent reported on such notable corporate collapses as HIH, One.Tel, Westpoint and Fincorp as well as some of the nation's highest profile bankruptcies and the investigations and prosecutions arising from Australia's most notorious instances of white collar crime.

1 Comment on "FEG letters spoiled Christmas for some"

  1. I haven’t reviewed this for a number of years, but, for something like 20 years there has been a real issue about the legality of the GEERS and FEGS Schemes administered by DEEWR. The problem arises where DEEWR advanced funds to the Insolvency Practitioner as a loan to the IP, and DEEWR required the IP to distribute the funds to employees in the priorities specified by DEEWR. However, the distribution from the IP to employees was not in accordance with the priority set out in Section 556 of the Corporations Act 2001 – due to the exclusion of superannuation claims from the distribution, and limits and sub-limits imposed by DEEWR that are not set out in the Section 556. The net result is that, however well-intentioned, the IPs paid distributions to former employees other than in accordance with the priority set out in Section 556, and DEEWR may be knowingly concerned with that contravention (Section 79 of the Corporations Act). The current direct payment of employees by FEGS may overcome these problems, but, these schemes have been poorly administered for many years.

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