Employers ‘rorting’ GEERS scheme as costs blow out

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Employers ‘rorting’ GEERS scheme as costs blow out

Evidence is emerging that some employers are rorting the GEERS system and letting taxpayers pay the redundancy benefits of workers when their companies go into liquidation.

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Evidence is emerging that some employers are rorting the General Employee Entitlements and Redundancy Scheme (GEERS) system and letting taxpayers pay the redundancy benefits of workers when their companies go into liquidation.

Media reports quote insolvency experts saying that directors of some 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.

GEERS is designed to pay the wages, annual leave and redundancy entitlements of workers that are left unmet when liquidators are called in.

Payments capped
 
However, these payments are capped and such workers rarely get all they were entitled to under the company’s redundancy scheme.

The government is entitled to reclaim its GEERS costs from company assets, but these have never met the annual costs of running the GEERS scheme.

The GEERS system was set up by then Minister for Employment Tony Abbott in 2001, after the collapse of airline Ansett and National Textiles, a business run by Stan Howard, brother of then prime minister John Howard.

‘Fraught with moral hazard’
 
Abbott’s predecessor, Peter Reith, said the scheme was always ‘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 yesterday 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.

Figures revealed yesterday shown that about $1 billion has been spent on GEERS payments since it began, but only $150 million has been recovered from the failed companies.’

$160m gap
 
Official figures show that the gap between payouts and recoveries was about $135 million a year as of July last year. But based on payments made since then, the gap for the following 12 months is likely to be as much as $160 million.
Shorten 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.

$18.2m ‘clawed back’
 
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.
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