Corporations Law Amendment (Employee Entitlements) Act 2000

The Corporations Law Amendment (Employee Entitlements) Act 2000 is an amending Act. Its stated purpose is to amend the Corporations Law, and for related purposes. It received Royal Assent on 30 June 2000 and commenced on that day.

Its key practical effect was to insert Part 5.8A, titled Employee entitlements, into the former Corporations Law. For readers using the law today, that historical amendment now sits within the current Corporations Act 2001 framework. In practical terms, this Act is part of the legislative history, while the operative employee entitlement avoidance rules are now found in Part 5.8A of the Corporations Act 2001.

The object of the inserted Part is stated directly in the legislation. It is to protect the entitlements of a company’s employees from agreements and transactions entered into with the intention of defeating recovery of those entitlements. That focus on intention is central. The provisions are not drafted as a general ban on restructures or insolvency-related transactions. They target arrangements entered into with a prohibited purpose.

If you are checking current obligations, use this page as a guide to what this amending Act introduced, then confirm the current text of Part 5.8A in the Corporations Act 2001 before acting on it.

The prohibition is broad in who it can reach. Section 596AB says a person must not enter into a relevant agreement or a transaction with the intention, or with intentions that include the intention, of preventing recovery of employee entitlements or significantly reducing the amount that can be recovered. The text is not limited to directors only. It applies to a person who enters into the arrangement.

For employee coverage, the Part applies to a person who is, or has been, an employee of the company, whether remunerated by salary, wages, commission or otherwise. That means current employees and former employees can both be within the protected class.

The legislation also recognises that an entitlement may be owed to someone other than the employee. It gives examples such as an amount owed to dependants or a superannuation contribution payable to a fund. In those cases, the Part applies as if references to the employee included the person to whom the entitlement is owed.

There is also a specific limit for excluded employees within the meaning of section 556. Their entitlements are protected under this Part only to the extent they have priority under paragraph 556(1)(e), (f), (g) or (h). For businesses, that means not every employee-related amount is protected in the same way for every category of employee.

The legislation defines the employee entitlements protected by Part 5.8A. These are specific categories listed in section 596AA. The protection is not expressed as an open-ended reference to all employment claims.

The protected entitlements are wages payable by the company for services rendered, superannuation contributions payable by the company in respect of services rendered, amounts due in respect of injury compensation, amounts due under an industrial instrument for leave of absence, and retrenchment payments payable under an industrial instrument in respect of termination of employment.

That matters in practice because the risk is not limited to unpaid wages. A business assessing a proposed transaction should also identify superannuation liabilities, leave liabilities under industrial instruments, injury compensation amounts and retrenchment obligations under industrial instruments. These issues may sit across payroll, HR, finance and insolvency records rather than in one place.

The legislation also makes clear that an entitlement of an employee need not be owed directly to the employee. That is especially relevant for superannuation contributions and some dependant-related amounts.

The main trigger is entry into a relevant agreement or transaction with a prohibited intention. The prohibited intention can be either preventing recovery of employee entitlements or significantly reducing the amount of those entitlements that can be recovered.

The legislation is deliberately broad in how it treats arrangements. A reference to a relevant agreement or a transaction includes a relevant agreement and a transaction, and also a series or combination of agreements or transactions. In practical terms, that means a business cannot assume each step will be judged in isolation if the overall arrangement has the prohibited intention.

Two express points in the legislation are especially important. First, the prohibition applies even if the company is not a party to the agreement or transaction. Second, it applies even if the agreement or transaction is approved by a court. So formal structure, indirect implementation or court approval do not by themselves take an arrangement outside the rule.

The Act also links this area to insolvent trading concepts. If a person contravenes section 596AB by incurring a debt within the meaning of section 588G, the incurring of the debt and the contravention are linked for the purposes of the Law. That linkage matters because the Act also amended the double recovery rules dealing with section 588M and section 596AC.

For businesses, the practical question is not simply whether a transaction is commercially explainable. It is whether any part of the intention behind entering into the arrangement was to stop employees recovering protected entitlements or to materially reduce what they could recover.

Section 596AC creates a compensation mechanism where a person contravenes section 596AB in relation to employee entitlements, the company is being wound up, and employees suffer loss or damage because of the contravention or action taken to give effect to the agreement or transaction involved in the contravention.

The legislation says the person is liable whether or not they have been convicted of an offence in relation to the contravention. The company’s liquidator may recover an amount equal to the loss or damage as a debt due to the company. The note to the section explains that because employee entitlements are priority payments under paragraphs 556(1)(e) to (h), employees have priority to compensation recovered by the liquidator in proceedings under this section.

Employees may also recover directly, but only through the statutory pathway set out in sections 596AF to 596AI. If the company is being wound up, an employee may begin proceedings with the written consent of the liquidator. There is also a notice procedure. After the end of 6 months from the beginning of the winding up, an employee may give the liquidator written notice stating the intention to begin proceedings, specifying the contravention and entitlement, and asking for either written consent within 3 months or written reasons why proceedings should not be begun.

If the liquidator has not consented by the end of that 3 month period, the employee may apply to the court for leave to begin proceedings. If the liquidator has given written reasons opposing proceedings, the employee must file that statement with the court and the court must have regard to those reasons.

There are also express limits preventing employee proceedings in some circumstances. An employee cannot begin proceedings if the liquidator has already applied under section 588FF in relation to a transaction that constituted or formed part of the contravention, or has already begun proceedings under section 596AC or section 588M, or has intervened in a civil penalty application relating to linked insolvent trading conduct.

Proceedings under section 596AC may only be begun within 6 years after the beginning of the winding up. Any amount recovered by an employee under subsection 596AC(3) is also taken into account in working out the amount for which the employee may prove in the liquidation.

The Act contains express double recovery rules. Section 596AD says that an amount recovered in proceedings under section 596AC for a contravention of section 596AB must be taken into account when working out what, if anything, is recoverable in other proceedings under that section and in proceedings under section 588M relating to a linked debt.

The Act also replaced section 588N so that amounts recovered under section 588M in relation to the incurring of a debt must be taken into account when working out what is recoverable in other section 588M proceedings and in section 596AC proceedings relating to a linked contravention.

For businesses, liquidators and employees, the practical point is that the legislation is designed to stop the same loss being recovered twice through overlapping causes of action. If there are linked insolvent trading issues and employee entitlement avoidance issues, they need to be read together rather than treated as separate buckets of recovery.

The Act also states in section 596AE that section 596AC operates in addition to, and not in derogation of, any rule of law about a person’s duty or liability because of their office or employment in relation to a company. It does not prevent proceedings being brought for breach of such a duty or liability. In practical terms, the compensation regime sits alongside, rather than replacing, other possible duties and claims.

The Act inserted a penalty for subsection 596AB(1). The penalty stated is 1,000 penalty units or imprisonment for 10 years, or both. Because the legislation uses penalty units, the dollar amount depends on the value of a penalty unit at the relevant time. It is more accurate to describe the penalty by reference to penalty units and imprisonment than by using a general phrase such as substantial fines.

In practical compliance terms, businesses should focus on the points the legislation actually targets. First, identify whether protected employee entitlements exist or may arise. Second, review whether a proposed agreement, transaction or series of steps could be said to have an intention of defeating or significantly reducing recovery of those entitlements. Third, if the company is in winding up, check whether the liquidator has already taken action or whether the statutory employee claim process is engaged. Fourth, if the arrangement involves incurring debts, consider whether the linked debt provisions may also be relevant.

The legislation does not create a general safe harbour for transactions simply because they are documented, commercially framed or approved by a court. The text instead directs attention to intention, employee loss, winding up status and the interaction with other recovery provisions.

The Act received Royal Assent on 30 June 2000 and commenced on that day. It is an Act to amend the Corporations Law, and for related purposes. Its key operative effect was to insert Part 5.8A dealing with employee entitlements and to make related amendments, including double recovery provisions and a penalty entry for subsection 596AB(1).

For present-day use, the important status point is that the employee entitlement avoidance provisions introduced by this Act are now read within the Corporations Act 2001 framework. If you are checking current law, read this page together with the current text of Part 5.8A of the Corporations Act 2001.

This page is based on the legislation text. It does not attempt to summarise later case law or regulator guidance on how courts or regulators have applied these provisions in particular factual settings.