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Going Broke: What Workers Should Do

By Tom Wheelwright

A no nonsense guide to protecting your entitlements when the boss goes bust.

Workers know the situation only too well. You are working in the Accounts Department and all of a sudden you are told to go slow on paying the bills. Cash is tight. Suppliers start ringing to complain about not receiving their cheques. What do you do? Is the company in trouble? Will it go down the gurgler and take the workers entitlements with it?

It is a terrible feeling and it is all the more stressful because ASU members are often the ones who have to deal with angry suppliers and anxious inquiries from their work mates. Woodlawn Mines and most recently National Textiles have only increased everyone's sense of insecurity.

There are a number of reasons why a company may be slow in paying.

The first thing is to try not to panic. Good companies can find themselves in a cash crisis because they are growing too quickly to buy more stock and extend the necessary credit to their customers. In this case, an enlightened bank should step in to help, because the business is sound. Sometimes the Board has decided to enter a new market and it takes a while to build market share. It is also possible that the shareholders or a bank are supporting a new management team who are turning a company around. In these cases, it is really the fault of management for not sharing important information with the workforce.

The situation is more serious when a good company is faced with a declining industry or, worst of all, when a company is the victim of bad management.

What is the difference between "administration" and "liquidation"?

If the worst happens and the company cannot pay its bills, the Board of Directors will in nearly every case appoint an "Administrator". Basically, the Administrator tries to find a way to keep the company trading, so that the creditors, including the workers, can eventually be paid all or part of what they are owed.

At this point the role of the workers often becomes crucial. Five days after the appointment of the Administrator by the Board. a meeting of all the creditors, including the workers, is held to confirm that appointment. The workers vote is important because the creditors can appoint a different Administrator if they are not happy with the one originally appointed by the Board.

The Administrator has 21 days to complete his or her investigation into the company's affairs and to report to a meeting of creditors. The report will recommend:

1. whether the company should be returned to the original owners and management;

2. whether the company should continue to operate but under a Deed of Company Arrangement; or

3. whether the company should be put into liquidation.

If an Administrator cannot see a way to keep the company trading he will recommend to creditors that he be appointed as Liquidator for the purposes of winding up the company. This is usually the worst option for workers and unsecured creditors because the assets are usually mortgages to specific lenders and the company has lost the ability to generate cash.

Where do workers stand in the pecking order of creditors?

Generally workers have first call on the "floating assets" of the company, which means cash in the bank or the proceeds of customer accounts that are yet to be paid. In reality, a company that is under administration has little in the way of floating assets - which is why they are in trouble!

When the "non floating" assets of the business are sold the proceeds are firstly applied to the benefit of the secured creditors. These are usually banks or other lenders who have a mortgage over specific assets like plant and equipment or land. Next come the workers, for their unpaid employment entitlements and last are the unsecured creditors. The unsecured creditors are often small businesses who have not been paid for the work they have done and it should be remembered that they have workers too.

What should union delegates do if the company is in trouble?

It is always wise to take an interest in a company and to ask questions about its welfare. However, the answers can be technical or the delegate may doubt the truth of what he or she is being told. In that case, or when workers are aware that an Administrator or Liquidator has been appointed, it is time to call for expert advice.

Millions of dollars in workers entitlements can be involved. An adviser to the workers can ask the Administrator or Liquidator whether the assets are being sold to the highest bidder, especially if the buyer is connected with the Board. An adviser can ask to see evidence that money promised to workers, in return for supporting a deed of arrangement, actually exists and is likely to be forthcoming. If the offer is for only a portion of what is owed to the workers, an independent adviser can advise on whether or not the offer represents the best workers are likely to get.

All too often, workers are given a document and told that if they do not support it, they will get nothing. They sit in creditors meeting like kangaroos in the spotlight, accepting whatever they are offered because they feel they have not option. At least ASU members know that through the union they can get advice that puts their interests first.

Tom Wheelwright has been a member of the ASU since 1981. He spent 10 years as a stockbroker and an investment fund manager before serving as a Labor Sentor for NSW. Tom was defeated in the 1996 federal election and has since run his own business. He often deals with insolvent companies through Stapleton Corporate Advisory Services.

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  Issue 47 contents

»	Insurance Deal Guarantees Entitlements
»	Casual Work Inquiry Moves Closer
»	Questions Over National Push for 36 Hours Week
»	WA Govt Pulls Plug on Unionists
»	A Fair Day�s Surf
»	Hotel Workers Jam AIRC
»	PM's Security Guards Walk off the Job
»	SOCOG Dances: Budget Not There
»	Women Win Right To Wear Trousers
»	Another Rustbucket On Our Coast
»	Catholic School Teachers Endorse Strike Action
»	We Can't Share the Spirit If We Can�t Afford the Rent
»	Unionist Honoured Posthumously
»	Radio Free East Timor

»	The Soapbox
»	The Locker Room
»	Trades Hall
»	Tool Shed

»	Carr's Parisian Lunchmate
»	Send Us a Letter

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