Anytime a company enters into insolvency or liquidation, the staff and employees will instantly lose their positions. This means lost wages, salaries, holiday pay, and sick leave. When this happens, employees will be able to file a claim against the company to help retain these lost monies. Before this can be done, however, the employee is going to need to have evidence that backs up their claim. They can request financial records from the liquidator to help strengthen their claim. Principle Insolvency is here to talk about what happens when employees make these claims and what employee debt preferences are.
Understanding Employee Debt Preferences
When an employee makes a claim, it may be considered preferential. This means the money that is owed to them must be paid before unsecured creditors. Employee preferences are going to depend on the structure of the company. Here are some of the amounts owed which may be paid in preference to other creditors:
– Employees have a right to be paid any wages or salaries that were earned during the four months leading up to the company entering into liquidation or bankruptcy.
– It also includes and donations that were deducted from the employee’s wages or salary but weren’t transferred by the employer.
– Holiday pay that hasn’t been rewarded to the employee.
– Some compensation to the employee may be made redundant as a result of the company failing.
– Includes any student loan payments or child support that are deducted from an employee’s pay that the company hasn’t paid out.
– Money earned by the employee in the four months leading up to insolvency could be linked to reimbursements or rewards from determinations by the Employement Relations Authority (ERA) or Employement Court that were found in favor of the employee.
– Also, superannuations or KiwiSaver payments applying to any of the bullet points listed above.
The Employee Debts that Aren’t Given Preference
It is important to note that not all payments owed to employees are going to be given preference. Here are some examples of what is likely not given preference:
– Wages that were earned before the four months leading up to insolvency or liquidation
– Wages that were earned after the business entered insolvency or liquidation
– Includes bonuses, incentives and commissions
The Amount of Preferential Debt an Employee Can Claim
Another important thing to remember is that there is a limit to what an employee can claim on a preferential basis and that is $31, 820. If the number exceeds #31,820, it will probably be denied on a preferential basis.
Insolvency Services in Auckland, Hamilton, Levin & New Zealand Wide
If you are facing insolvency as a company, it is time to turn to Principle Insolvency to help you understand what the next step is. We will help you navigate these trying times. It is our goal to either work toward a crispness restructure or help you move forward with liquidation. Call us today!