Bankruptcy and liquidation

Sometimes businesses shut down because they aren't profitable or run out of money.

Find out about employee entitlements during bankruptcy and liquidation.

On this page:

When a large business downsizes during bankruptcy or liquidation

In most circumstances, small businesses don’t have to pay redundancy pay when making an employee redundant.

There are situations when a non-small business employer may downsize and become a small business employer during bankruptcy or liquidation. When this happens, the employer may still be required to pay redundancy entitlements to eligible employees.

Check the rules that apply for redundancy at Who doesn't get redundancy pay?

Source reference: Fair Work Act 2009 s.121(4)

Employee entitlements during bankruptcy

When a business is bankrupt (known as going into liquidation or insolvency), employees may be eligible for help through the Fair Entitlements Guarantee (FEG).

The FEG is an Australian Government safety net scheme to claim unpaid wages and other entitlements. It was previously known as the General Employee Entitlements and Redundancy Scheme or GEERS.

The FEG is available to eligible employees to help them get their unpaid entitlements. This can include:

  • wages – up to 13 weeks of unpaid wages (capped at the FEG maximum weekly wage)
  • annual leave
  • long service leave
  • payment in lieu of notice of termination – maximum of 5 weeks
  • redundancy pay – up to 4 weeks per full year of service.

It doesn’t include:

  • superannuation
  • reimbursement payments
  • one-off or irregular payments
  • bonus payments
  • non-ongoing or irregular commissions.

Find out who is an eligible employee and how to make a claim at Department of Employment and Workplace Relations – Fair Entitlements Guarantee.

Businesses that aren’t in liquidation

Sometimes an employer might close their business and abandon it without placing it into liquidation. If this happens, employees may have trouble getting their wages and other entitlements from their employer.

The Australian Securities and Investments Commission (ASIC) may be able to help employees recover their entitlements by winding up the abandoned business. ASIC can only help if the business is a company registered with them under the Corporations Act 2001. This usually means the legal name of the business will end with 'proprietary limited' or 'pty ltd'.

To get help, employees need to ask ASIC to wind up the abandoned company. You can read ASIC's Regulatory Guide for more information, which outlines:

  • how to make a request to have an abandoned company wound up
  • what ASIC will consider when deciding to wind up an abandoned company
  • the information employees should provide to ASIC.

Illegal phoenix activity

Illegal phoenix activity is when an employer:

  • deliberately liquidates their company
  • starts a new one to keep doing the same business or work.

The employer does this to avoid the old company's responsibilities. For example, paying taxes and employee entitlements.

Illegal phoenix activity negatively impacts on employees, contractors and the wider community because it can mean that:

  • employees aren’t paid their wages, superannuation and accrued employee entitlements
  • ‘phoenix businesses’ get an unfair competitive advantage over other businesses
  • suppliers don’t get paid
  • government revenue is lost, and there are increased monitoring and enforcement costs
  • regulatory obligations are avoided.

Illegal phoenix activity can significantly impact employees' ability to recover their unpaid entitlements.

A government-wide Phoenix Taskforce works together to combat illegal phoenix activity. You can find more information about the Taskforce from the Australian Taxation Office (ATO): Phoenix Taskforce.

Report illegal phoenix activity

The ATO has a Tip-Off Hotline, where employees, creditors, competing businesses and the general public can confidentially provide information or report their concerns about possible illegal phoenix activity. You can contact the hotline on 1 800 060 062.

You can also report information about illegal phoenix activity by:

For advice and information about warning signs, and where to go for help go to the ATO's illegal phoenix activity.

Before a business stops operating

Before a business stops operating it might go into voluntary administration. Voluntary administration happens when a business can't pay its debts. An administrator is appointed to work out if the business can keep operating or should go into liquidation.

When a business is in voluntary administration (before it goes into liquidation) we can provide advice and help employees seek unpaid entitlements.

Tools and resources

Related information

Help for small business

Tags
Ending employment (eg. final pay, notice)
Bankruptcy & liquidation