When a Company Files for Liquidation, What Happens to its Employees? (2022 Update)
Employees are among the most affected parties when a company goes into liquidation. Along with the potential loss of their job, receiving payment for previously completed work is also a paramount concern. It’s essential for employees to always know what their legal rights are and what steps they can take or claims they may be entitled to.
Rights of Employees
Employees typically lose their jobs when a company is liquidated. Employees have legal rights to unpaid wages, retirement, leave, and layoff. The primary challenge for the employees is that expenditures and fees associated with the liquidation process must be covered before using the proceeds from asset collection and sales. Priority creditors come next, leaving little to no money for employee benefits in many cases. Unfortunately, this results in many employees not receiving their entitlements in most cases. The Australian government established the Fair Entitlements Guarantee to solve this problem.
Claiming under the Fair Entitlements Guarantee (FEG)
In Australia, a system known as the Fair Entitlements Guarantee (FEG), which the federal government runs, offers a last-resort safety net for employees. Eligible workers may be able to file claims through the FEG for unpaid pay, unpaid annual leave, and other rights. If funds are available, employees are entitled to receive payment from the liquidation proceeds.
What can employees claim under the FEG?
The following items may be claimed under the FEG by eligible employees:
- Wages are unpaid for up to 13 weeks.
- Both annual and long-service leaves.
- Up to five weeks worth of compensation in lieu of notice
- If the employee’s contract (or governing document) calls for it, redundancy compensation may be given for up to four weeks of service per year or on a pro-rata basis for fewer than a year.
The FEG prohibits employees from claiming the following, even though several are specified as employee rights in the event of a bankruptcy or liquidation:
- Reimbursement payments, as well as irregular or one-time payments
- Bonus payments or one-time or inconsistent commissions are covered.
How do employees submit a claim through FEG?
A claim must be filed within a year of the termination of employment or liquidation to be considered valid. Claimants can submit a claim by applying to FEG Online Services, where they will be required to provide proof of their citizenship status. Then, using the online service, all relevant documentation can be submitted. Claimants may be required to submit supporting documents in addition to proof of citizenship, such as letters of appointment or employment contracts, pay stubs, PAYG summaries, bank statements, proof of wage rates, and notes of termination.
Contact Australian Company Liquidations if you would like more information about company liquidations. We are registered business liquidators who provide a free 24/7 insolvency hotline for Australian directors looking for expert help. Call us right now at 1800 981 070.