Many employees have concerns about the company they work for going into liquidation, and whether outstanding salaries will ever be paid.
Unfortunately, this is a growing worry among New Zealanders because of the increasing number of national liquidations, largely attributable to the grim economic down-turn post covid.
You should know your rights and entitlements should a liquidation affect you.
When the company goes down
When a company goes into liquidation, the natural assumption is that there is no money or assets to pay owed individuals and businesses from. Fortunately, this may not always be the case.
All the company’s employment agreements may be terminated on the day of liquidation except for circumstances where the liquidator needs them to continue to perform work to generate more funds to pay off as many creditors as possible.
What a liquidator can do for you
As an employee, you may still be able to receive your dues should any money remain from the assets of the company. This is something a liquidator will assess.
Once a liquidator is appointed, they will go through the process of selling off the company’s assets. The generated funds will be used to pay off priority creditors and preferred individuals or entities.
Priority rank
Those who get paid first in a series of claims are canvased in the Companies Act 1993 (“CA”). The provisions that secure an employee’s entitlement to funds are known as preferential claims. These can be found at Schedule 7(2) of the CA.
The payment of liquidators and administrators takes first priority, followed by employees. The maximum amount payable to an owed employee is $31,820[1]. Amounts that exceed this limit will fall to the end of the priority line among other unsecured creditors.
Payments include holiday pay, owed redundancy pay, and amounts owing to IRD on behalf of an employee.
Eligible payments only apply for work provided to the company during the 4 months before the commencement of the liquidation. Payment for work conducted before or after these 4 months is not legally enforceable and neither are bonus or incentive payments.
Conclusion
If you would like advice specific to your situation, reach out to an insolvency practitioner or a legal professional. If things are not at that stage yet, stay informed and up to date with the changing economic landscape for New Zealand companies.
You may also want to consider enforcing any rights under your individual employment contracts before grey skies turn stormy.
[1] Companies (Maximum Priority Amount) Order 2024 (SL 2024/176) 3 Maximum priority amount – New Zealand Legislation
