Sudden employer bankruptcy is a stressful, and uncertain time for countless employees across the country. However, there’s some good news – there are many employment laws in New Zealand that provide protection for employees affected by business insolvency (inability to pay off debts).
Understanding your rights and options can help you navigate this challenging time, and you’ll come out on the other side with a brighter future.
Understanding Employer Bankruptcy
When a company goes bankrupt, it enters liquidation, a receivership, or voluntary administration.
Liquidation – Liquidation occurs when a liquidator takes control of, and freezes a company’s unsecured assets. These are then sold to repay creditors and shareholders.
Receivership – Receiverships occur when a receiver is appointed to sell company assets, or manage the company to make enough money to pay secured creditors. Receivers pay the highest priority debts first (wages, taxes), which are known as preferential claims.
Voluntary Administration – Voluntary administration is an alternative to liquidation that helps companies who are financially struggling (insolvent or near-insolvent) to restructure and regain control.
Overall, if a company is dissolving, the company’s assets will be managed, sold, or redistributed to pay creditors. Employees are considered preferential creditors, and have specific entitlements under New Zealand employment law.
What Happens to you?
1. Business closure and redundancy – If your company ceases trading and operations, you are likely to be made redundant. Employers must follow a fair redundancy process, including providing notice, and final payments.
2. Company sale or restructuring – In some cases, part of the business may be sold or restructured. A new employer may choose to retain some employees, though this is not guaranteed.
3. Receiver or liquidator takes over – Once a liquidator or receiver is appointed, they control the company’s assets and determine employee payments. Employees may need to file claims for owed wages and entitlements.
Steps to take if your Employer goes Bankrupt
1. Confirm the company’s status – Check with your employer whether the company is in liquidation, receivership, or voluntary administration.
2. Contact the liquidator or receiver – If your company is being dissolved, obtain details from the liquidator or receiver about your entitlements, and when and how to file a claim.
3. Lodge a claim for unpaid wages – Your next step would be to submit a claim for outstanding payments to the liquidator.
According to Employment New Zealand, the most you can get paid for preferential claims is $31,820 as of September 2024. If your employer owes you more, what you will get depends on what the employer has left. Payments are typically made at the end of the bankruptcy process.
4. Seek government assistance – You can contact Employment New Zealand for advice, as well as seek support from Work and Income New Zealand (WINZ) while you decide your next career steps.
5. Look for new opportunities – Begin searching for new job opportunities, and consider retraining options and courses to upskill, as you navigate through a constantly-changing workforce.
Upskilling is especially important if you’ve been working at the same company for an extensive time, and haven’t had to change jobs in many years.
6. Seek advice – If you are unsure of your rights and need advice, consult an employment relations specialist to stay informed, and prepare you to make significant decisions moving forward.
Although this may be a difficult and stressful time, you’re not alone. By following these steps and reaching out to relevant services that are dedicated to helping you, you’re bound to reach an appropriate resolution.
The Bottom Line
Employer bankruptcy is a challenging experience, but knowing your rights and taking proactive steps can help you recover financially, professionally, and personally. Employment laws provide you with relevant protection, ensuring you receive priority claims, and access to government support if necessary. Remember to act quickly, but rationally!
Mahi Law can Help!
Our expert team will help you understand your employment rights, and pursue resolution (including compensation) through various channels, such as: Without prejudice negotiations, mediation, the Employment Relations Authority, or Employment Court if required.
We also work on a no-win, no-fee basis – if we win your case, your employer covers the costs.
Get in touch for a free consultation! You can fill out this form – or contact us at [email protected], or 0800 450 032.
Follow us for more tips and insights → Instagram | LinkedIn | Facebook | TikTok
