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(February-2004) Ansett settlement exposes key flaws
The news that the Trustees of the Ansett Australia Ground Staff Superannuation Plan had finally settled their claim against the deed administrators was good news for not only the members of that plan but also for other employees of Ansett. It not only facilitates the payment of redundancy benefits, but allows super plan members to rollover their (albeit adjusted) benefits to new funds while bringing on the final wind-up of the Ground Staff Plan.
The settlement itself raises numerous issues that the super industry will still face, while four other Ansett Superannuation Plans in various stages of wind-up are also affected in different ways by the settlement.
What does the settlement actually mean?
n The commercial settlement allows the deed administrators to release another $67 million to Ansett employees;
n Of that amount, $39 million goes directly to Ground Staff members, the balance goes to other Ansett employees;
n The Commonwealth Government conceded its “priority” in respect of the $67 million.
n No more money will go to any of the Ansett Superannuation Plans.
Analysis
The commercial settlement, while beneficial for Ground Staff members, exposes the flaws in the super industry and legislative system in the event of major corporate insolvencies.
The problems identified are:
n Trustees having to deal with recalcitrant administrators;
n The unwinnable contest between redundancy payments and super benefits owed to the same employee/member;
n The contest between competing creditors;
n The intervention of the Commonwealth Government as a priority creditor;
n The ambiguity of the priority ranking of super fund deficits in the Corporations Act 2001 (the Act)
n The courts having jurisdictional problems.
As you can see, this was an extremely difficult and complex situation. As there were five Ansett Superannuation Plans (some with the same directors) there were a multitude of problems to deal with. While the commercial settlement effectively means no more money will be paid into the super funds, had the Trustee not commenced proceedings in 2001, they would not have achieved a further $39m going directly to their members as cash payments. Other Ansett Superannuation Plan members will share in the balance as well as other Ansett employees who were not members of the five plans.
Should the Superannuation Plan Trustees have had to go through all this trouble? In a perfect world, the answer would be no. However, trust law requires trustees to preserve trust assets. In Ground Staff’s case, at one stage the Fund deficit was in the vicinity of $150-$200 million. APRA also required the trustee to chase this amount. The trustees could not therefore pay out or seek to adjust benefits without having exhausted all avenues for collection.
Trustee actions
The Trustee was required to take legal action to protect the position of members. Trustees are unsecured priority creditors pursuant to section 556(1)(e) of the Act, but this can be unilaterally varied by the administrators when drafting a deed of company arrangement (DOCA) and voted for by other unsecured creditors. Due to the actions of the administrators, the trustee in this case had to undertake two legal actions:
1. In the Supreme Court:
(a) to establish there was a legal obligation to contribute the shortfall for retrenchment payments to the Ground Staff Plan; and
(b) to establish there was priority under section 556(1)(e) or other sub-sections of the Act; and
2. In the Federal Court:
to overturn the DOCA on the basis it was unfairly prejudicial to the trustee and the members.
Competing priorities
Corporate insolvencies also become complicated when the Government seeks to intervene with a scheme such as the Special Employee Entitlements Scheme for Ansett. These loans to the administrator pay employee entitlements such as unpaid wages, annual leave, long service leave and up to eight weeks redundancy pay. The Government then seeks to have the same priority as the employee and “stands in the shoes” of the employee in the set order of priorities. The difficulty is that super ranks higher under the Act than these items, therefore trustees dealing with administrators who are pressed by the Government and the union movement pushing for those benefits carry an increasing burden. The Government then ranks higher than the employees in relation to their benefits. In this case, it wanted total repayment of its loan while collecting the $10 ticket tax at the same time.
Conclusion
The current insolvency provisions in the Act are inadequate to protect outstanding super entitlements. It is obvious that trust deeds could be amended to make the employer directly liable to fully fund the trust, but if the Act is not amended to first, recognise this priority, and second, to stop administrators from varying this priority, then no outstanding super entitlements will be fully protected.
— Mark Abramovich is a partner at national law firm, Deacons.
AUTHOR
External
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