Article by Mr Charles Chauvel

Associate Commerce and Labour Minister Laila Harre has announced proposed changes to insolvency laws which would increase the present limit on priority credits for wages, also widening these payments to include redundancy compensation. The measures are aimed at giving employees better protection and improving the options open to individuals facing bankruptcy.

The Seventh Schedule of the Companies Act 1993 covers the priority of claims. The proposed changes would involve amending clause 6 of the Seventh Schedule, raising the present limit of priority in respect of money due to an employee from $6,000 to $15,000. Clause 2(a) of the Seventh Schedule prioritises the payment of "all wages or salary of any employee". Clause 2(a) would be amended to include reference to redundancy payments as well.

The $15,000 limit remains a total possible figure to be made up of all monies owed, including any redundancy compensation. This would still not affect secured creditors, who retain a higher priority under the list in the Seventh Schedule.

Reaction to the proposals was mixed. Trade unions have welcomed the proposals but business groups have said the changes could disadvantage contractors and small businesses, because less money would be available to them as creditors once employees are paid.

Cabinet approved the proposals last month as part of a comprehensive review of personal and corporate insolvency law. This legislation is expected before Parliament next year.

Will keep you informed of ongoing developments.

If you would like further information on the effect of this decision please contact Minter Ellison Rudd Watts.

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