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Australia Update : Getting your hands on the new source of liquidation funding for liquidators

On 1 July 2015, the Commonwealth Government in Australia launched the Fair Entitlements Guarantee (FEG) Recovery Programme.

What is FEG?

FEG provides financial assistance for unpaid employment entitlements to eligible employees who have lost their jobs due to the liquidation or bankruptcy of their employers. Once entitlements are paid under FEG, the Commonwealth stands in the shoes of the employee as a subrogated creditor and is entitled to claim in the liquidation and is given priority over other unsecured creditors under the Corporations Act 2001 (Cth).

Under the FEG Recovery Programme, liquidators of companies for which FEG advances have been made can apply to the Commonwealth for litigation funding in order to pursue recovery proceedings and other litigation activities which they would not otherwise have the resources to pursue, increasing the property available for creditors.

How do you apply?

Liquidators can apply for funding where:

•     employment entitlements have been paid under the FEG Scheme;

•    there are claims that could be brought on behalf of the company against one of more persons, including for voidable transactions and insolvent trading;

•    those claims have reasonable prospects of success;

•    if successfully prosecuted, the claims will result in the company recovering property that will improve the return for employment entitlements; and

•    the requisite application form has been completed.

What does the Commonwealth consider?

The Commonwealth considers the merits and complexity of the case, prospects of success, estimated costs of the proposed litigation as compared to the Commonwealth’s proof of debt, the assets available of the defendant(s) to meet any judgment ordered against them.

If a liquidator’s application for funding is accepted they will be required to enter into a funding agreement with the Department of Employment. The funding agreement will govern what the Department will pay for and how monies recovered are to be applied.

Is the FEG programme a recipe for success? 

The FEG Recovery Programme revives the previously successful funding regime that operated under the old GEERS system, which was discontinued without explanation. That old system saw the Commonwealth make a profit of about 500%, and when recoveries by non-Commonwealth creditors were included the return on investment was closer to 2000% (see October 2008 Review of the GEERS Active Creditor Pilot Program).

Where do I find more information?

For further information, please contact Stephen Polczynski, Managing Partner, Polczynski Lawyers, Sydney, Australia spolczynski@plawyers.com.au

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