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IN FOCUS: FEG Priorities

27 June 2024

The priority of employee entitlements over secured creditors in the context of circulating asset realisations is governed by specific sections of the Corporations Act.  Here’s a summary of the key points and relevant case law:

Priority Framework under the Corporations Act

Receivership:

  • Section 433(3)(c): In the case of a receiver appointment, employee entitlements are prioritized over secured creditors with respect to circulating assets.

Liquidation:

  • Section 561: In the event of liquidation, employee entitlements have priority over circulating security interests.

Role of the Fair Entitlements Guarantee (FEG)

FEG often advances substantial sums to cover unpaid employee entitlements. Due to its subrogated position under Section 561, FEG frequently litigates to recover these advances by expanding the definition of circulating assets.

Implications and Policy Considerations

  • The clarity provided by recent decisions helps define the priority between liquidators and employee entitlements in insolvency cases.
  • The role of FEG in litigating to recover advances highlights ongoing tensions and the need for careful interpretation of circulating assets.
  • Future policy considerations might involve the Commonwealth’s broader approach to involvement in these types of cases to avoid disincentivizing liquidators from generating funds.

These summaries highlight the complexities in prioritizing employee entitlements and the evolving nature of case law and policy in this area.

Key Contact

Blair Pleash

Trust us for precise financial recovery solutions.

Expertly managing FEG priorities to protect employee entitlements and secure creditor interests.

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