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Volume 34 Number 1 June 2009 |
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Employee Entitlements and Secured Creditors: Assessing the Effects of the Maximum Priority Proposal |
| Jeannette Anderson and Kevin Davis
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Abstract |
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Corporate failures and consequent default on obligations have, in some circumstances, led to significant losses for employees with accumulated unpaid leave entitlements. The Australian government responded initially to this problem by implementing a government-funded compensation scheme. Subsequently it announced a proposal involving legislating for seniority (maximum priority) of entitlements in corporate liquidation which has not been implemented. This paper analyses and provides quantitative estimates of the consequences of changing creditor priority in this manner. Contrary to conventional wisdom and arguments mounted in opposition to such a change, the effect on corporate funding costs would be extremely small. The paper argues that legislation to effect such a change warrants further consideration as a complement to the existing compensation scheme.
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Keywords |
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EMPLOYEE ENTITLEMENTS; CORPORATE FAILURE; CREDIT RISK
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Contact DetailsJeannette AndersonGroup Risk Infrastructure ANZ Bank, Melbourne Kevin Davis Department of Finance, The University of Melbourne & Melbourne Centre for Financial Studies. Email: kevin.davis@unimelb.edu.au |
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This page was last updated in August 2009. Copyright © The University of New South Wales Phone: +61 2 9931 9200; Email: eajm@agsm.edu.au |