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Labour hire businesses and their directors should be aware of the implications of insolvency or restructuring, as it may affect their ability to operate.

Insolvent labour hire providers are of particular interest to LHA, as insolvencies can result in workers losing wages and other entitlements, causing harm.

Even if workers are not harmed directly, external administration processes can sometimes be used by directors to avoid legal obligations.

When labour hire companies engage in non-compliant activity, they may gain a competitive advantage on price over lawful industry participants. For example, a provider may be able to undercut competitors for a period of time by not making tax payments and meeting other obligations.

Under the Labour Hire Licensing Act 2018 (Vic) (LHL Act), directors and other key people involved in managing labour hire businesses must be ‘fit and proper’, to protect workers and improve the integrity of the industry.

When determining whether to grant a licence in circumstances of prior external administration or insolvency, LHA will consider:

• whether the applicant disclosed the prior external administration or insolvency, demonstrating candour and honesty
• the reasons for the business becoming insolvent or entering external administration, and the solvency status of the business prior to entering external administration
• whether the business had complied with all relevant legal obligations including (but not limited to) workplace law, superannuation law, workers compensation law and taxation law
• whether workers suffered harm through unpaid wages and other entitlements 
• whether the debts owed by the business in connection with relevant laws have been paid and the business has rectified or remediated the causes of the insolvency or external administration
• what role the officers played in the insolvency or external administration event
• whether debts owed to workers and statutory creditors prior to the appointment of a administrator/liquidator/receiver were fully satisfied, irrespective of whether a Deed of Company Arrangement was entered into.

While LHA may refuse a licence application where a relevant person has been an officer of a company that was insolvent or under external administration within the preceding five years, LHA may also cancel a licence where a licence holder goes into external administration.

Types of external administration defined under the Corporations Act 2001 include:

• liquidation
• voluntary administration
• receivership
• restructuring.

Businesses should seek advice from appropriately qualified business advisers to understand their circumstances and arrangements.

LHA must be notified if directors or other relevant persons change or are no longer fit and proper or compliant with legal obligations under the LHL Act.

In October 2024, a horticulture company and two directors were issued penalties totalling $263,889 for failing to comply with licence obligations. This included a failure to inform LHA that a new director was not a fit and proper person, as he had been an officer of two companies that were placed under external administration within the preceding five years.

If a business closes, they cannot transfer their labour hire licence to another business. The new business must apply for a new labour hire licence.

Refusing licences due to circumstances of insolvency

In 2024-25, a company intending to provide workers in the security, public administration and safety, and cleaning industries applied for a labour hire licence.

The director of the company disclosed in the application that, in the preceding five years, they had been a director of an externally administered company. Review of the available creditors’ reports and the winding up reports showed that approximately 150 employees were affected by the administration with over $1.3 million dollars outstanding in wages and superannuation.

LHA identified previous reports of the use of unlicensed security guards and ‘off-the-books’ cash payments. LHA also identified a report from another regulator whose audit uncovered breaches of workplace law and significant cash payments which resulted in referrals to the Australian Taxation Office, the State Revenue Office and the Fair Work Ombudsman.

LHA considered submissions made by the director, including their claim that external factors, including COVID-19, had adversely impacted the security business.

LHA refused to exercise discretion to grant the licence because:

• the non-compliance of the business started prior to the COVID-19 pandemic
• the director had previously been unable to meet obligations to workers
• there was an appreciable risk that these harms could recur if they were granted a labour hire licence.