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Employee concerns over rising business administrations

The rising number of voluntary administrations across Australia has led to concerns for the personal finances of employees who work for businesses wavering on the brink of insolvency.

According to the Australian Securities Investment Commission (ASIC), there was a 28% rise in corporate insolvency cases over the previous quarter in the three months to June 30, 2014. In the following quarter, ASIC reported a further increase of 6.6%.

Compared to the previous quarter, appointments in the Northern Territory were up 33.3%, while ACT was up 35.5%.

After a business is placed into administration, the appointed Voluntary Administrator may recommend that the company enter into either a Deed of Company Arrangement (DOCA) or liquidation. If creditors don’t accept the proposal for a DOCA and vote for liquidation that usually creates serious implications for employees in that they will lose their jobs. Although employee claims for salary, wages or holiday pay are usually paid by a Commonwealth Government scheme known as Fair Entitlements Guarantee (FEG) and are also given special priority over the debts of a company’s unsecured creditors the loss of employment can create serious problems for their household finances.

“Individuals often face personal financial crises when the company that they work for falls apart”, says Anthony Warner, CEO of Insolvency Services Australia (ISA). “ISA is a team of licensed insolvency practitioners who can provide professional services and advice for everyday Australians struggling with their finances after unemployment.”

Indicators of a business heading towards insolvency that employees can look out for include:

  • Late or unpaid wages and superannuation Continual corporate financial losses
  • Overdue company taxes
  • Suppliers placing a hold on accounts or insisting on COD
  • Inability of company to raise further equity capital
  • Dishonoured cheques and special arrangements with selected creditors.

For more information on voluntary administration, personal insolvency and the services provided by ISA call us on our toll free advice line 1800 003 883.

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