SMH, 11.7.12
THE cost of the federal government scheme that pays workers their entitlements when companies go broke has soared fourfold in the past five years, amid claims that employers are exploiting the scheme.
The government has spent about $1 billion on the General Employee Entitlements and Redundancy Scheme (GEERS) over the past 11 years, but has recovered only $150 million from failed companies.
Claims are now running at levels that exceed those at the height of the global financial crisis, a Herald analysis has found.
The blowout in the safety net payments is likely to worsen amid a spate of collapses in the retail, manufacturing and construction sectors that has thrown tens of thousands of people out of work and forced the Gillard government to pump more money into the fund.
Insolvency experts believe directors of troubled businesses are exploiting the system by trading until company cash reserves are exhausted because they expect GEERS will pay most of the entitlements they should have paid to their workers.
Official figures show the gap between payouts and recoveries stood at about $135 million a year as of July last year, but based on payments since then the gap for the following 12 months is likely to be as much as $160 million.
The chocolate manufacturer and retailer Darrell Lea yesterday became the latest company to fold, putting 700 jobs at risk as it entered voluntary administration. The administrator, Mark Robinson of PPB, said that although he was confident of finding a buyer, GEERS would be available for employees if the business had to be wound up.
GEERS was set up in 2001 by the then minister for employment, Tony Abbott, following the collapse of the airline Ansett and the National Textiles business run by Stan Howard, the brother of the then prime minister, John Howard. It has the support of both sides of politics, industry, unions and the insolvency practitioners.
However, the director of national workplace relations at the employer body Ai Group, Stephen Smith, described as ''very risky'' an increase in redundancy benefits under GEERS announced last year. ''We said at the time that the insolvency of even one large company with a generous redundancy scheme could create a huge budget shortfall,'' he said.
Peter Reith, who preceded Mr Abbott as minister, said the scheme was ''fraught with moral hazard, right from the start''.
''The government went into it with its eyes open,'' he said. ''I was a party to it, but I wouldn't describe it as my best moment.''
The Minister for Employment, Bill Shorten, defended GEERS and attacked company directors for failing to meet their obligations.
''As was the case in Hastie [Group, which collapsed in May], these situations are often a result of financial mismanagement by company directors,'' a spokesman said.
He said the $200 million allocated to fund GEERS in 2011-12 had proved sufficient to meet all payments advanced to workers.
An analysis of statistics compiled by the Australian Securities and Investments Commission shows the number of companies that owe more than $500,000 in redundancy payments at the time they collapse has more than doubled, surging from 24 in 2008-09 to 55 in 2010-11.
Payouts for the first nine months of the 2011-12 financial year totalled almost $140 million and the amount clawed back from failed companies by the government was just $18.2 million. If the trend is maintained, the payout figure is likely to reach more than $186 million at year's end and recoveries will total $24.3 million.
The last three months of the year were particularly bad. Collapses in May alone included the trucking company 1st Fleet, retailer GAME and engineering conglomerate Hastie Group.
with Philip Wen
The government has spent about $1 billion on the General Employee Entitlements and Redundancy Scheme (GEERS) over the past 11 years, but has recovered only $150 million from failed companies.
Claims are now running at levels that exceed those at the height of the global financial crisis, a Herald analysis has found.
The scheme is designed to pay the wages, annual leave and redundancy entitlements owing to workers at the moment their employer calls in liquidators.
Insolvency experts believe directors of troubled businesses are exploiting the system by trading until company cash reserves are exhausted because they expect GEERS will pay most of the entitlements they should have paid to their workers.
Official figures show the gap between payouts and recoveries stood at about $135 million a year as of July last year, but based on payments since then the gap for the following 12 months is likely to be as much as $160 million.
The chocolate manufacturer and retailer Darrell Lea yesterday became the latest company to fold, putting 700 jobs at risk as it entered voluntary administration. The administrator, Mark Robinson of PPB, said that although he was confident of finding a buyer, GEERS would be available for employees if the business had to be wound up.
GEERS was set up in 2001 by the then minister for employment, Tony Abbott, following the collapse of the airline Ansett and the National Textiles business run by Stan Howard, the brother of the then prime minister, John Howard. It has the support of both sides of politics, industry, unions and the insolvency practitioners.
However, the director of national workplace relations at the employer body Ai Group, Stephen Smith, described as ''very risky'' an increase in redundancy benefits under GEERS announced last year. ''We said at the time that the insolvency of even one large company with a generous redundancy scheme could create a huge budget shortfall,'' he said.
Peter Reith, who preceded Mr Abbott as minister, said the scheme was ''fraught with moral hazard, right from the start''.
''The government went into it with its eyes open,'' he said. ''I was a party to it, but I wouldn't describe it as my best moment.''
The Minister for Employment, Bill Shorten, defended GEERS and attacked company directors for failing to meet their obligations.
''As was the case in Hastie [Group, which collapsed in May], these situations are often a result of financial mismanagement by company directors,'' a spokesman said.
He said the $200 million allocated to fund GEERS in 2011-12 had proved sufficient to meet all payments advanced to workers.
An analysis of statistics compiled by the Australian Securities and Investments Commission shows the number of companies that owe more than $500,000 in redundancy payments at the time they collapse has more than doubled, surging from 24 in 2008-09 to 55 in 2010-11.
Payouts for the first nine months of the 2011-12 financial year totalled almost $140 million and the amount clawed back from failed companies by the government was just $18.2 million. If the trend is maintained, the payout figure is likely to reach more than $186 million at year's end and recoveries will total $24.3 million.
The last three months of the year were particularly bad. Collapses in May alone included the trucking company 1st Fleet, retailer GAME and engineering conglomerate Hastie Group.
with Philip Wen
