Fast Lane: Taxpayers shouldn’t be called on to fund redundancies for troubled businesses

Insolvency firm PPB Advisory has called for changes to the federal employee entitlements scheme which it says will save businesses from going under.

The Fair Entitlements Guarantee scheme provides employee entitlements once firms go into liquidation. 

But PPB Advisory partner Stephen Longley says businesses on the brink of insolvency should be given government assistance to make redundancies before they collapse, which just might save them.

“If the business survives we have actually saved money that would have been paid out if the business collapses,” Longley told The Australian.

PPB has made a submission to the Productivity Commission outlining its proposed changes to the scheme.

It used the example of APV Automotive Components, which needed to cut its workforce from 130 to 100 at a cost of $2 million in 2012. 

APV was able to find $1 million to fund the redundancies, but as SmartCompany reported at the time, APV collapsed because it could not fund the other half of the redundancy payouts and the staff would not accept a reduced package.

The entitlements scheme then had to pay out $9 million to fund APV’s insolvencies. 

In a situation like that faced by APV, it is clear early access to the entitlements scheme could work.

But changing the scheme is not a proposal the Productivity Commission or the Abbott government should entertain. 

There’s a saying in legal circles that “good cases make bad law”, which means a judgment which bends over backwards to achieve a good and fair outcome in one situation can create a legal precedent which results in generally poor outcomes.

This is the risk here.

Changes to the scheme may save some businesses like APV from collapse, but it runs the risk of leading to more and more government interventions in private businesses.

If businesses expect the taxpayers will bail out redundancies it will just encourage the development of over-generous severance packages.  

The Fair Entitlements Guarantee Scheme currently operates as a scheme of last resort.

That’s the way it needs to stay.