Professional Recovery Services Australia & New Zealand

Company Liquidation and Redundancy

Company Liquidation Redundancy

When a company goes into liquidation, it is not just the creditors and customers that lose out; it’s many of the employees and contractors of the firm that wake up to find themselves redundant and unemployed. What are the rights of employees in this scenario and how can they access any redundancy payments? As a business owner, what do you need to be prepared for?

What exactly is an employee?

First, let us make sure there is no question as to what constitutes an employee. As we have seen with some firms like Uber and its drivers, there can be grey lines if someone is an employee, an independent contractor or even a franchisee.

An employee is defined by the Australia Securities and Investments Commission as someone who is “engaged by a company under an award, enterprise agreement, agreement-based transitional instruments” or a “contract of employment” and is also paid a wage, salary or even a commission. This means that someone in a sales-commission-only role is technically an employee in the eyes of the government.

However, and this is an important distinction, a contractor is not an employee. They are an unsecured creditor who is working a set project (either hours or a result) for a future payment.

What are employees owed during liquidation?

If a firm undergoes liquidation, the employees will be creditors for any unpaid sick leave, superannuation, annual leave, long service leave or any other credits. They may have security of assets and be waived preferential payments (see our topic on preferential payments to not get caught out).

Employees have a right to be paid for their outstanding credits before other unsecured creditors in the business but after the liquidator has been paid. First, they will be paid any outstanding wages and superannuation, followed by outstanding sick and annual leave, and lastly any redundancy payment. Each level of credits will be paid out in full to all employees before the next level.

As mentioned above, contractors are classed as unsecured creditors and will be paid out after the above if any funds remain.

Are directors and relatives classified as employees?

Yes, and no. If you are a business owner or relative employed by the firm undergoing insolvency, then you are limited to a maximum payout of $2,000 for any wages and superannuation, and only $1,500 for sick pay & annual leave. You have no priority when it comes to any redundancy payments and will only draw funds from the shared employee pool.

Claiming redundancy and other entitlements

If you believe that you deserve further entitlements than what the liquidator has stated, then you can make a claim. You will need to submit a ‘proof of debt’ form (obtained from the liquidator) and attach your records of expenses. It is up to the liquidator to approve or reject this claim, but they will at least let you know if it is even possible to offer this remediation depending on the funds available. If the liquidator rejects your claim, you will only have 14 days to appeal it in Court. If you miss this window, then your claim is denied permanently.

A final note – it is against the law to try and avoid paying employee entitlements. If you avoid paying who is classed as an employee money they are entitled to, you are breaking the law. You will be personally liable for the ‘suffering of employees’ and will have to pay compensation.

If you believe you are entitled to a redundancy payment or any other entitlements, reach out for expert advice. If you’re unsure about your obligations as a business owner, contact us.

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