When a company goes into liquidation, employees often face significant uncertainty about their entitlements. This article will provide a detailed explanation of what happens to employee wages and other benefits when a company in New Zealand enters liquidation, along with additional information that employees should know.
Employee Entitlements in Liquidation
When a company in New Zealand goes into liquidation, employees are considered preferential creditors under the Companies Act 1993. This means their claims take priority over unsecured creditors but are secondary to secured creditors such as banks or financial institutions. Here’s how the process typically works:
Wages Owed
Employees are entitled to any unpaid wages up to a statutory limit of $25,000. This covers wages earned in the four months prior to liquidation. Liquidators will prioritise paying these amounts using the company’s available funds.
Holiday Pay and Other Leave
Unused annual leave, public holiday pay, sick leave, and other leave entitlements are also classified as preferential claims, falling within the $25,000 statutory limit.
Redundancy Payments
If an employment agreement specifies redundancy entitlements, these amounts are also prioritised within the $25,000 cap. However, redundancy pay is less common unless explicitly included in the contract.
Kiwisaver Contributions
Employer Kiwisaver contributions that are unpaid at the time of liquidation are treated as unsecured debts. This means they are less likely to be paid unless there are sufficient funds after settling preferential and secured debts.
Claims Above the Statutory Limit
If the total amount owed to an employee exceeds $25,000, the balance becomes an unsecured debt. These claims are unlikely to be paid unless surplus funds remain after all higher-priority debts are settled.
What Determines Employee Payments During Liquidation?
The payment of employee entitlements during liquidation depends on several factors:
- Available Assets: The liquidator must identify and realise the company’s assets. These funds are used to pay creditors based on the priority established by law.
- Secured Creditor Claims: Secured creditors, such as banks with registered charges over the company’s assets, have the first right to payment. Only after their claims are satisfied will employee entitlements be addressed.
- Preferential Claims: Employee claims fall into the preferential category, meaning they are paid ahead of most unsecured creditors but after secured creditors.
- Liquidator’s Costs: The liquidator’s fees and costs are paid first, as these are necessary to manage the liquidation process.
Additional Information for Employees During Liquidation
Filing a Claim
Employees must submit a formal claim to the liquidator to receive their entitlements. The claim should include evidence of wages owed, leave entitlements, redundancy pay (if applicable), and any other outstanding amounts.
Government Assistance
In cases where the company’s assets are insufficient to cover employee claims, the New Zealand Government provides limited support through the Insolvency and Trustee Service. Employees may be eligible for payments under the Wage Earner Protection Scheme, which covers unpaid wages and holiday pay up to a capped amount.
Employer Obligations
During the liquidation process, the company’s directors are required to cooperate with the liquidator. This includes providing accurate records of employee entitlements and other financial details to ensure claims can be processed efficiently.
Impact on Current Employees
For employees still working when liquidation is declared, their positions will likely be terminated. Liquidators typically cease operations to preserve the remaining assets, although there may be exceptions if the business is sold as a going concern.
How InSolve Can Assist Employees and Employers
Navigating the liquidation process can be complex for both employees and employers. At InSolve, our team of company liquidation lawyers in New Zealand can provide tailored advice and support:
- For Employees: We help employees understand their rights and guide them through the claims process, ensuring they secure the maximum entitlements possible under New Zealand law.
- For Employers: We advise business owners on managing employee claims during liquidation, ensuring compliance with legal requirements while minimising disputes.
- Dispute Resolution: In cases where there are disputes regarding employee entitlements or other claims, we offer effective dispute resolution strategies to protect your interests.
- Expert Guidance: Our team simplifies the complex legal framework surrounding liquidation, making the process less stressful and more transparent.
Need Help Understanding Employee Entitlements During Liquidation?
At InSolve, we understand the challenges employees face when a company goes into liquidation. Our expert liquidation lawyers are here to help you secure your entitlements and guide you through the process. Contact us today by calling 021 844 806 or by visiting our website for more information.
