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Watch this space: Criminal charges laid against persons allegedly involved in unlawfully restructuring to avoid payment of employee entitlements – Employee Rights/ Labour Relations



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Over recent years there has been a groundswell of support for
criminalising wage theft. Less widely appreciated however, is the
existing ‘teeth’ afforded to regulators to pursue
individuals involved in corporate restructuring that evades payment
of employee entitlements. This article provides an overview of the
legal framework and a current criminal prosecution in which a
director and an officer are squarely accused of such criminal
activity.

For context, in April 2019, the Corporations Amendment
(Strengthening Protections for Employee Entitlements) Act

2019 (Act) came into effect. That
legislation enhanced Part 5.8A of the Corporations Act
2001
(Cth) (Corporations Act) to make it
easier to prosecute persons involved in corporate restructures that
had the effect of reducing recovery of employees’
entitlements.

Section 596AB of the Corporations Act already made it an offence
for a person to enter into an agreement with the intention
of
, or with an intention that included: (i) preventing the
recovery of entitlements of employees of the company; or (ii)
significantly reducing the amount of entitlements employees of a
company could recover. The amendments lessened that threshold: a
person can now be liable if they are ‘reckless’ as to the
whether an agreement will prevent or significantly reduce the
amount recoverable by employees (section 596(1C)).

The stakes are high with the current penalty set at 15 years
imprisonment for individuals and/or a fine of up to $999,000 and,
if the court can determine the benefit derived and detriment
avoided because of the offence-that amount multiplied by 3.

Until recently, the Australian Securities & Investments
Commission (ASIC) has not actively pursed many
prosecutions under Part 5.8A. However that is changing. In March
2022, the former chairman of Bruck Textile Technologies Pty Ltd
(Bruck Textile) and the former Chief Financial
Officer, appeared in the Wangaratta Magistrates Court where it was
alleged that both persons had, in contravention of section 596AB,
sold the assets of Bruck Textile to a related entity in 2014 prior
to implementing staff redundancies so as to prevent or
significantly reduce the amount of redundancy entitlements
ultimately payable to employees (estimated by the liquidators to
exceed $3.48 million). The day after the sale, Bruck Textile was
deemed insolvent and placed into liquidation, resulting in the
dismissal of 58 employees many of whom did not receive their legal
entitlements.

The matter is being prosecuted by the Commonwealth Director of
Public Prosecutions (CDPP). The accuseds face a
maximum penalty for a breach of section 596AB of $170,000
(applicable at the time of the offence) or imprisonment for 10
years, or both.

We understand this prosecution is the first of its kind and will
be followed with keen interest. As the 2019 amendments have the
effect of making prosecutions easier (the CDPP need only establish
that the person was reckless as to the consequences of the
corporate restructure rather than having intended a particular
result), and as the focus on wage theft only intensifies, we
anticipate there will be more regulatory interest by ASIC and
others in this space.

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