What Happens to Your Employees During Company Liquidation?
Company liquidation devastates employees who typically lose their jobs and become priority unsecured creditors of the company. These situations hit employees the hardest. They face sudden unemployment and uncertainty about their unpaid wages and entitlements.
Your employer’s liquidation doesn’t leave you completely without options for unpaid entitlements. The Australian Government’s Fair Entitlements Guarantee (FEG) scheme helps you if you’ve lost your job due to your employer’s liquidation. This last-resort scheme covers up to 13 weeks of unpaid wages (capped at the FEG maximum weekly wage), annual leave, long service leave, up to 5 weeks payment in lieu of notice, and redundancy pay up to 4 weeks per full year of service.
SV Partners, the company liquidation Brisbane experts, outlines are what happens to your employment and how to claim your entitlements if your company goes into liquidation. You’ll learn how the FEG works, what it covers, and your options to recover unpaid superannuation.
What happens to employees when a company goes into liquidation
A company’s liquidation affects employees right away. The business must stop operating, and the staff loses their jobs immediately. Employees need to quickly learn about their rights and what to do next.
Employment termination and notification
The liquidator sends official notices to all employees about their job termination. They write to the staff about the situation and list any unpaid benefits based on company records. Company directors should tell employees early about the upcoming liquidation and explain how it will affect their jobs, pay, and benefits. This open communication helps reduce tensions and lets employees get their own legal advice if needed.
Becoming a creditor of the company
After losing their jobs, employees automatically become creditors of the liquidated company. Any unpaid wages, superannuation and leave benefits become a debt the company owes.
The law gives employees special status in getting paid. The Corporations Act 2001 lists them as preferential creditors, so they must be paid before regular unsecured creditors. The payment order starts with wages and superannuation, then leave benefits, and finally retrenchment payments.
Initial steps employees should take
After getting the termination notice, employees should:
- Get and submit a proof of debt form from the liquidator to claim any money owed
- Collect supporting documents like employment contracts, payslips, and leave records to prove their claims
- Keep personal employment records since company files might be incomplete or messy
Staying in touch with the liquidator helps a lot. Ask them to confirm they got your claim and if they need more information. If they reject your claim and you disagree, make sure to follow the steps in the rejection notice within the time limit. The decision becomes final if you miss the deadline.
The Fair Entitlements Guarantee (FEG) scheme might help if the company can’t pay what it owes you. We’ll cover this in detail later.
Understanding employee entitlements in liquidation
Your employee entitlements during liquidation follow specific rules about what you can claim and when you’ll get paid. These rules will help you through the tough times after your employer goes into liquidation.
Wages and superannuation
The law lets you claim up to 13 weeks of unpaid wages. The Fair Entitlements Guarantee (FEG) caps this amount at $4,360 gross per week. Your unpaid superannuation contributions get priority status. The Australian Taxation Office (ATO) handles superannuation claims since FEG doesn’t cover them.
Annual and long service leave
You can claim both annual leave and long service leave entitlements during liquidation. These claims get priority status but come after wages and superannuation in the payment order.
Redundancy and notice pay
The law entitles you to redundancy pay up to 4 weeks per full year of service and payment instead of notice up to 5 weeks. Small business employers don’t usually need to make redundancy payments unless they’re downsizing.
Order of payment priority
The Corporations Act 2001 Section 556 sets out this payment order:
- Wages and superannuation contributions (including Superannuation Guarantee Charge)
- Leave entitlements (annual leave and long service leave)
- Retrenchment payments (redundancy and notice pay)
Each category needs full payment before moving to the next one. Employee entitlements must be paid completely before ordinary unsecured creditors get anything.
What if there are not enough funds?
The FEG steps in as a safety net when there’s not enough money to cover your entitlements. This government scheme helps with specific entitlements but has its limits. The FEG won’t cover unpaid superannuation. The ATO claims the Superannuation Guarantee Charge instead, which combines unpaid super with administration fees and interest.
You stay a creditor in the liquidation for any unpaid amounts that exceed FEG limits.
How the Fair Entitlements Guarantee (FEG) helps
The Fair Entitlements Guarantee (FEG) protects employees when their employer goes bankrupt and can’t pay what they owe. This safety net replaced the General Employee Entitlements and Redundancy Scheme (GEERS) in 2012. It provides financial support when companies don’t have enough money to pay their workers.
What FEG covers and what it doesn’t
FEG helps workers with five main types of unpaid entitlements:
- Wages: up to 13 weeks of unpaid or underpaid wages
- Annual leave: full unpaid entitlements
- Long service leave: where applicable
- Payment in lieu of notice: maximum of 5 weeks
- Redundancy pay: up to 4 weeks per full year of service
FEG won’t cover your unpaid superannuation guarantee contributions. The scheme also caps weekly wages at $4,360 gross.
Eligibility criteria for FEG
You can claim FEG assistance if you:
- Lost your job because your employer became insolvent or got fired within six months before an insolvency practitioner stepped in
- Haven’t received one or more of the covered entitlements
- Hold Australian citizenship or permanent/special category visa when terminated
- Submit your claim within the required timeframe
The scheme doesn’t cover contractors, company directors, their spouses, and close relatives.
How to apply for FEG
FEG Online Services offers the quickest way to lodge your application. You’ll need a smartphone with an authentication app like Microsoft Authenticator. Paper claim forms are also available on the FEG website or through the FEG Hotline (1300 135 040).
Time limits and documentation required
Your deadline to submit a claim falls 12 months after:
- Your last day of employment, or
- The liquidator’s appointment date
You must prove your Australian citizenship or residency status with passports, birth certificates, or visa documentation.
What happens if FEG doesn’t cover everything
Your unpaid entitlements that exceed FEG limits or don’t qualify for coverage make you a creditor in the liquidation process. FEG payments usually take 4-10 weeks after verification. This is a big deal as it means that you won’t have to wait for the entire liquidation to finish.
What about unpaid superannuation?
Unpaid superannuation follows a completely different process from other employee entitlements when companies go into liquidation. This significant difference affects how employees can recover their funds.
Why FEG doesn’t cover super
The Fair Entitlements Guarantee scheme has excluded superannuation from its coverage. Superannuation represents a unique obligation that tax legislation governs rather than standard employment entitlements.
ATO’s role in recovering super
The Australian Taxation Office manages all unpaid superannuation claims. The ATO files claims for the Superannuation Guarantee Charge (SGC) during liquidation. This charge has the unpaid super plus administration fees and interest. The SGC gained priority status in liquidation proceedings since December 2007. It now ranks equally with employee wage entitlements and receives payment before ordinary unsecured creditors.
How the ATO distributes recovered super
The liquidator pays recovered superannuation to the ATO when funds become available. Your superannuation will reach your account after the ATO distributes these funds. This process will give a proper allocation based on each employee’s entitlements.
Steps employees can take to follow up
Employees worried about unpaid super should take these steps:
- Talk to the ATO about recovery options
- Report missing super through ATO’s online tool
- Submit payslips and super fund statements as evidence
- Monitor recovered super through ATO online services
Conclusion
Company liquidation creates a tough and stressful situation for employees without question. Still, knowing your rights and entitlements can make this challenging period easier to handle. Your employment ends right when liquidation starts, and you become a priority creditor with specific rights to claim unpaid entitlements.
The Fair Entitlements Guarantee (FEG) scheme serves as a vital safety net for most employees in this situation. This government support covers most entitlements like wages, annual leave, long service leave, notice pay, and redundancy payments, with certain caps and limits. You must submit your FEG claim within 12 months to recover your finances.
Unpaid superannuation works differently. The Australian Taxation Office manages these claims through their Superannuation Guarantee Charge system. You should reach out to the ATO directly about these funds instead of relying on FEG coverage.
Quick action matters after you receive your termination notice. Your position as a creditor becomes stronger when you collect personal employment records, submit proof of debt forms, and stay in touch with the liquidator. You should also check if you qualify for FEG assistance, especially when the company’s assets might not cover your entitlements.
Liquidation brings uncertainty, but Australian law provides strong protection for employee interests. Your entitlements take priority over ordinary unsecured creditors, which gives you better odds of recovery than many others in the liquidation process.
This whole process might feel overwhelming at first. You can handle this difficult transition better by understanding the process, knowing your rights, and taking the right steps to secure your earned entitlements.
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