Do employees get paid when a company goes into liquidation?
If a company is unable to pay its debts when they are due, the business could enter into voluntary liquidation. Liquidating the company will affect all stakeholders, however employees, in particular, will be concerned about their jobs and whether they will be paid for the work they have already completed.
The federal government operates a scheme called the Fair Entitlements Guarantee (FEG), which is a final resort protection measure for employees. The FEG enables eligible employees to claim unpaid wages, unpaid annual leave and other entitlements. If there are funds available, employees may also be paid the proceeds from the liquidation.
What does the FEG allow employees to claim?
Under the FEG, employees who are eligible can claim:
● Unpaid wages for up to 13 weeks;
● Annual and long-service leave;
● Pay in lieu of notice for up to 5 weeks; and
● Redundancy pay for up to 4 weeks per year of service or on a pro-rata basis for less than 1 year of service if the employee’s contract or other legal instrument allows for it.
The FEG does not enable employees the right to claim superannuation, reimbursement payments or one-off, irregular payments. Similarly, no bonus payments or commissions will be paid.
Who is eligible for FEG?
To be eligible for FEG, the following criteria apply:
● The employee’s end of employment was due to the company’s insolvency; or
○ Occurred less than six months before the appointment of an insolvency practitioner; or
○ Occurred on or after the appointment of an insolvency practitioner.
● The employee is actually owed the employment entitlements they are claiming and lodged the claim within 12 months of either: losing their employment, the date of liquidation or insolvency.
● The employee has taken reasonable steps to prove these debts during the liquidation.
● The employee needs to be an Australian citizen or permanent resident or hold a category of visa which allows them to stay in Australia at the time they lost their employment.
Generally, contractors will not be permitted to claim their employee entitlements, although some exclusions apply for some textile, clothing and footwear contract outworkers. In addition, directors of the company and their relatives will be ineligible for these claims. Other eligibility exclusions may apply.
If you would like to learn more about employee entitlements after a company goes into liquidation, please speak to CRS Insolvency Services on 1800 003 883. We offer free, confidential advice on our 24/7 toll-free hotline to help reduce financial distress to businesses.