A business that is unable to pay its debts is frequently insolvent. The voluntary administration, liquidation, or receivership of several insolvent businesses is common. The effects of liquidation affect more than only the company directors. Many workers at the firm experience the anxiety and uncertainty that come with liquidation. Let’s go over employee entitlements during liquidation to see what kind of pay is available.
Company Liquidation: What Is It?
In general, the term “liquidation” refers to the process of liquidating a company’s assets in order to pay off any remaining obligations to creditors. A business will shut its doors and begin the deregistration procedure while it is under liquidation. The corporation will be given a “liquidator” to manage it.
It is the responsibility of the liquidator to look into the causes of the company’s bankruptcy and to divide the assets of the company fairly. The liquidator may decide to file a personal lawsuit against the directors or agents of the company if it is believed that they violated fiduciary obligations or participated in other criminal activity.
The corporation now pays its debtors during liquidation using the monies and assets it still has. Payments are made to the firm creditors proportionately. Simply said, this implies in order of hierarchy. Who are creditors, you might be wondering? A creditor is simply any individual, organisation, or corporation that has borrowed money to a firm on the condition that it repay the money in full in the future.
Entitlements of Employees During Liquidation
The termination of an employee’s job is the main effect they experience. As previously said, creditors are paid proportionately from the assets or finances of the company. The liquidator, however, is the first recipient of payment from the company’s finances and assets. After all, the corporation must reimburse the liquidators for their fees and expenses.
Second, the respective monies owed to secured creditors will be received. Third, the payments due to workers or priority unsecured creditors will be made. What kind of money will the business’s employees receive? Payments to employees will take the form of “outstanding entitlements.” Priority is given to paying your workers’ unpaid entitlements before paying any contractors or other unsecured creditors.
The following unpaid employee rights must be paid: Outstanding wages and superannuation, Outstanding leave entitlements, such as annual leave and long service leave, Retrenchment pay.
By the time the liquidator pays the company’s employees, it’s not unusual for the company’s finances and assets to be fully depleted. What happens then if the business doesn’t have enough money to pay its employees during liquidation? Well, previous to 2012, many employees went without pay if there were no cash left over after paying priority creditors and liquidation charges. Many employees were severely affected by this. However, the Fair Entitlements Guarantee was adopted by the Australian Government in 2012. (FEG). Employees are protected by FEG, which makes sure they receive their rightful compensation.
Employee Entitlements under the Fair Entitlements Guarantee (FEG)
If the dissolved firm is unable to pay employee entitlements during the liquidation, the Australian Government will provide funds under the FEG. Among these employee rights are:
- Unpaid earnings that are still owed up to 13 weeks,
- Outstanding unpaid leave obligations, including those for long service leaves and yearly leaves,
- Up to 4 weeks’ worth of redundancy compensation for each year of employment with the firm,
- payment in lieu of up to 5 weeks’ notice.
As you can see, this financial support is really beneficial. No employee is left behind since so many workers may receive cash compensation. Employees must fulfil FEG eligibility conditions, as opposed to employee entitlements paid from liquidated company leftovers. Click here to read more about these criteria.
Employees, among other groups, might suffer terrible consequences as a result of liquidation. A variety of employee privileges are nevertheless accessible during liquidation. Employees should generally be paid their unpaid salaries, unpaid leave entitlements, and retrenchment money. By the time the liquidators pay the company’s employees, however, it is really rather typical for dissolved corporations to have no money or assets remaining. As a result, FEG must take action to fulfil any outstanding employee benefits during liquidation. If you believe that liquidation is imminent, it is preferable to consult a lawyer.