If there is wide uncertainty about a company and their finances, it can leave everyone feeling a bit on edge. It can leave employees in particular, feeling like they might not get what they are entitled to. Many employees often wonder if they will get paid when the company that they have worked for goes into liquidation. Principle Insolvency is here to talk about what these entitlements look like when liquidation happens.
Employee Entitlements in Liquidation
There is a certain order in which people and creditors are paid when a company enters into liquidation. The entitlements of employees will fall somewhere in the middle of the pack when it comes to payments. They are not going to be paid before the banks and other secured creditors, but they will get paid before any of the unsecured creditors receive any money. This is the order in which employee entitlements are paid back to them:
– Wages: The first priority when paying employees entitlements is going to wages that they are owed for hours that have already been worked. Employees are entitled to unpaid wages up to $25,000. These are the wages that were earned in the four months leading up to liquidation.
– Holiday Pay: If there is unpaid holiday pay or paid leave that is owed to an employee, that will come next. This isn’t considered as high of a priority as wages for hours worked. It is considered a preferential claim though.
– Redundancy Payments: If an employee has an employment agreement that includes redundancy payments, there is going to be a limit to those as well at $25,000. This must be stated clearly in the agreement to get payment for it as this isn’t as common.
– Kiwisaver Contributions: When there are kiwisaver contributions at the time of liquidation, a company is going to treat them like an unsecured debt. Unless there are sufficient funds to cover the cost, they aren’t likely to receive payment for this.
– Claims Over $25,000: Sometimes, the total payment due to an employee exceeds the $25,000 statutory limit. If this is the case, it will become an unsecured debt. Again, unless there are sufficient funds to cover this after all the secured debts are taken care of, payment will be unlikely.
Employees Working at the Time of Liquidation
If there are any employees that are still working at the time of liquidation, they will more than likely be terminated. The liquidator that is assigned to the case will cease operations as they work to preserve assets to cover the company’s debts. If your business is facing insolvency and is about to enter into liquidation, you can contact Principle Insolvency to see what your options are. We will help you navigate this process as you work to do what’s right for your company. You need someone to guide you through this difficult process. Call us today!