On December 19 last year the industrious litigators heading the Fair Entitlements Guarantee (FEG) Recovery Program got the two things they must’ve wanted most. A Commonwealth decree declaring their pilot program permanent, and more funding.
At around the same time, a number of liquidators received correspondence from the FEG Recovery team. Apparently the letters – authored SiN understands by Arnold Bloch Leibler – requested that the liquidators explain why they had used money raised from circulating security asset realisations to pay remuneration earned and general administrative expenses incurred in the winding up.
One source said that letters they’d seen contained assertions from FEG that the recipient liquidator “is not entitled to deduct general administrative expenses in the winding up from the fund created by the realisation of circulating assets”.
Further the letters stated that FEG reserved the right to access any legal advice a liquidator was relying on to reject FEG demands for monies.
It would’ve been an unwelcome Christmas present for the recipients but a source close to FEG said that receivers and liquidators need to get used to the recovery unit examining how they’d dealt with monies raised by circulating security asset realisations.
“FEG is getting more active than ever in looking at whether the practitioner’s obligation under sections 433 and 561 have been met,” the source said.
“Section 561 says basically that if there’s a shortfall in paying the employee entitlements then the circulating assets need to pay for the shortfall. Typically, insolvency practitioners say, ‘well, our fees have to come out first’,” the source said, adding that FEG was “reviewing files that go back as far as the GEERS days”.
SiN understands the recovery unit has had significant success recouping money paid out to cover employee entitlements paid out by the FEG scheme. One source said they’d been told the program, headed by a senior team including former Borrelli Walsh director Henry Carr and ex-Ferrier Hodgson director Janine Cole, had raked in around $60 million, much of it from banks and receivers. Correspondence from the pair apparently implies a ready willingness to litigate if settlement cheques are not dispatched expeditiously.
Carr did not respond to requests for comment but coincidentally, BRI Ferrier’s first Technical Insights paper for 2017 deals directly with the issue of whether, under section 561, a liquidator is able to claim priority for remuneration, costs and expenses ahead of employee entitlements. You can read it at: http://briferrier.com.au/news/under-section-561-corporations-act-is-the-liquidator-able-to-claim-priority-for-remuneration-costs-a
When contacted BRI’s Peter Krejci declined to comment other than to confirm that BRI had not received a pre-Christmas please explain letter. But perhaps this is because BRI is deep in the recovery unit’s good books?
West Australian sources close to the committee of inspection (COI) for failed construction firm AE&E have told SiN that BRI, which is receiver appointed, has handed over $6 million to Carr and Cole, presumably following assessment of obligations under section 433. It’s clearly been Christmas for some.