When you work for a company that is facing insolvency and goes into liquidation, it might have you wondering whether or not you are going to get what is owed to you. It’s a valid concern and is one that should be answered honestly. It is important to understand what happens to employee wages and other benefits when a company goes into liquidation. Principle Insolvency is here to answer some of those questions as we take a closer look at what happens to employees and their money when the company they work for goes into liquidation.
Breaking Down Employee Entitlements
Under the Companies Act 1993, employees are considered preferential creditors when the company they work for goes into liquidation. This means that they should be one of the company’s top priorities second only to banks and financial institutions. Here is a breakdown of what to expect:
– Wages: Employees are entitled to wages that they are owed up to $25,000. This should cover the four months that led up to the liquidation.
– Holiday & Vacation Pay: If the employee has any holiday pay or paid leave that the company owes them, it should be paid as well as long as it stays within that $25,000 limit.
– Redundancy Payments: Unless you have a contract with the company that clearly states you are entitled to redundancy payments, it is less likely that you will receive these.
– Kiwisaver Contributions: Unless there are funds to cover Kiwisaver contributions at the time of liquidation, it is not likely that these will be paid.
– Claims Above $25,000: There might be a balance of over $25,000 that an employee is owed. However, when the number exceeds that $25,000 cap, all the money above that will become an unsecured debt.
Factors Determining Employee Payments During Liquidation
There are several factors that play a role in how an employee claim is paid.
– Assets: If the company has assets, they need to be identified and used to pay the company’s debts based on the priority that the law provides them.
– Secured Creditor Claims: Secured creditors or considered banks and other financial institutions. These creditors have the first right to any payments made by the company. Once all of these claims are satisfied, employee claims are paid.
– Preferential Claims: This is the category that employee claims fall under. Preferential claims are paid before any unsecured creditors and claims.
– Liquidator’s Cost: There are liquidator fees that will have to be paid as well. They are paid first to ensure the liquidation process can move ahead.
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If you or a business that you own is in financial trouble and facing insolvency, you can turn to Principle Insolvency to provide you with the options that are best going to help you come out of it. We will help you make wise financial decisions. Call us today!