Does anyone still think Kennet is such a hero ?

[Theoden]

Originally posted by Shinboners


I don't think the accounting standards need to be tightened. And anyway, there are so many loopholes that plenty of things can be hidden in a set of accounts.

What needs to be strengthened is the law. If the government can compel all companies to pay money into their workers superannuation accounts, then surely it can't be that difficult to change the law so that all worker entitlements are paid into a trust account with the money being paid out when a company goes bust or the employee leaves the company.

I don't think your suggestion is workable as the liability is unrealised and for 99% of companies (those that don't go broke) it will never be realised. Putting money into a fund this way takes the companies working capital which would then be replaced with debt and a weaker company. It is also a suggestion of horrendous red tape as the redundancy entitlements swing on a weekly basis (daily for the likes of Ansett) and the cost of accounting plus the fund management costs would be a huge drain.
It is not the redundancy entitlements that concern me so much. Employees rank above unsecured creditors. In Ansetts case the employees will get paid out but unsecured creditors will get nothing and many small businesses will go to the wall. What can be done is an annual calculation of redundancy liability and that figure going on the balance sheet. That way a small business can see what would be left if the company went under and they can decide whether to offer credit terms based upon more accurate information.

ps Balance sheets tend to hide profits for tax purposes so are upside apart from this liabilty disclosure

 

[Shinboners]

Originally posted by Theoden


I don't think your suggestion is workable as the liability is unrealised and for 99% of companies (those that don't go broke) it will never be realised. Putting money into a fund this way takes the companies working capital which would then be replaced with debt and a weaker company. It is also a suggestion of horrendous red tape as the redundancy entitlements swing on a weekly basis (daily for the likes of Ansett) and the cost of accounting plus the fund management costs would be a huge drain.

Well managed companies can always find a way to adapt....some companies are so well run that they return capital to their shareholders (like Woolworths did a couple of years ago).

It is true that the liability is unrealised, and paying out that liability when an employee leaves is fine if the company is still solvent. However, a problem arises when a company isn't solvent as the assets do not cover the liabilities, and since employees effectively rank as unsecured creditors, the chances are they will finish with nothing. The issue thus, comes down to this, what is the best way to protect employee entitlements when a company goes bust? While it's true that a company can use the employees entitlement money as working capital, but the fact is that money is not for the company to use. That money is the employee's property. As we saw with Ansett, there were many employees who made a lifelong commitment to Ansett and will come out of it with nothing. Why should these people suffer?

As we've seen with companies like Enron and HIH, those up at the top and in the know were able to withdraw funds to protect themselves financially. Intimate knowledge of the finanical state of a company and the ability to remove funds is not available to employees. The only way to prevent the removal of assets that hurt the employees is to take away from the company the money that belongs to the employees, thus putting it out of the way of bad managers....hence, make companies pay it out to an outside trustee.

When a company goes bust. The administrators and liquidators get paid. The secured creditors get paid. The tax office gets paid. Then there is nothing. By forcing companies to take some money and paying it to a trust will ensure that employees get paid if a company goes bust.

Another point. The Ansett workers may eventually get their full entitlement by way of the $10 levy. But what happens to the thousands of other workers in less high profile companies who lose their entitlements when their employer goes bust? Not every company has John Howard's brother on the board of directors.

It is not the redundancy entitlements that concern me so much. Employees rank above unsecured creditors. In Ansetts case the employees will get paid out but unsecured creditors will get nothing and many small businesses will go to the wall. What can be done is an annual calculation of redundancy liability and that figure going on the balance sheet. That way a small business can see what would be left if the company went under and they can decide whether to offer credit terms based upon more accurate information.

It's an interesting solution, but I figure that most small companies are pretty much forced to sell to whoever they can. Unless a small company has a product that no-one else can supply, then the buyer will find another business that is willing to sell to them. The other thing is that private companies are not required to have their financial statements put onto the public record.

ps Balance sheets tend to hide profits for tax purposes so are upside apart from this liabilty disclosure

You seem to know your stuff.....probably better than I do. But if someone like me knows how to hide stuff in the financial statements, heaven knows what the experts can do.....and the experts did do it with situations like Bond, Qintex, Enron, HIH etc. etc.