Employee entitlements in liquidation
Paying employees and helping with FEG
When a company is facing insolvency and possibly liquidation, quite rightly, one of the main concerns of a director is to ensure that employees, and contractors, are treated as best they can. There are a few things the Corporations Act has to say about employees and their entitlements and there is an excellent government scheme called FEG.
When a company goes into liquidation, the Corporations Act 2001 allows the employees of that company to hold a priority claim before other unsecured creditors. Should there be assets available for a distribution and if there are still funds after paying off liquidation costs, they will be distributed amongst employees provided that they submit their Proof of Debts detailing their claims to the Liquidator.
The only exception is if you are an “excluded employee”. An excluded employee is an employee who is, or was within the twelve months prior to liquidation, a director, a spouse of the director, or a relative of a director. If you are an excluded employee, you are only entitled to a maximum priority claim of $2,000 for wages, including superannuation, and $1,500 in leave entitlements. The remaining amount will be assessed with other unsecured creditors.
Fair Entitlements Guarantee Scheme (“FEG”)
If a company has no funds to distribute to employees, employees may be able to claim some of their entitlements by making a FEG claim. FEG claims may cover the following entitlements:
- up to 3 months unpaid wages for the 3 month period preceding the appointment of the liquidator;
- unpaid annual leave;
- unpaid long service leave;
- up to a maximum of 5 weeks unpaid payment in lieu of notice; and
- up to a maximum of 4 weeks unpaid redundancy entitlement for each completed year of service you have with your employer.
FEG will not cover the 9% superannuation guarantee.
Once you have lodged your claim, DEEWR will contact the Liquidator to verify the employee’s eligibility and verify each component of the claim. DEEWR will then notify the employee once their claim has been processed and will arrange payment via the liquidator.
How to Make a FEG Claim
To lodge a FEG claim, you will need to complete and lodge a FEG Claim form. For a copy of the form, or for more information about FEG, please visit the FEG website.
If you have any questions in relation to employee claims in a liquidation, please contact us now.
If the above advice has not answered your questions you might want to review the following pages and downloadable Information Sheets: