When a company goes into liquidation, employees face immediate and urgent questions: Will I get paid? What happens to my outstanding wages? Will my superannuation be paid? Am I entitled to redundancy?
The answers depend on what assets remain in the company, how those assets are distributed under Australian insolvency law, and whether the Federal Government’s safety net scheme — the Fair Entitlements Guarantee — applies. Understanding your rights as an employee, or as a director seeking to understand obligations owed to your workforce, is essential.
This guide explains what happens to employee entitlements when a company enters liquidation in Australia, including wages, annual leave, long service leave, superannuation, and redundancy. It covers the Fair Entitlements Guarantee (FEG) scheme and the director penalty notice regime that can expose directors personally for unpaid employee entitlements.
Employee Priority in a Liquidation: Where Do Employees Rank?
In a company liquidation, creditors are not all equal. The Corporations Act 2001 (Cth) establishes a strict priority order for the distribution of the company’s assets. Employee entitlements rank ahead of unsecured creditors but behind secured creditors and certain priority costs of the liquidation itself.
The priority order under section 556 of the Corporations Act is broadly as follows:
- Costs and expenses of the winding up (including the liquidator’s fees and legal costs)
- Outstanding employee wages and superannuation contributions
- Outstanding leave entitlements (annual leave, long service leave, sick leave entitlements under applicable awards)
- Retrenchment pay (redundancy pay)
- Unsecured creditors (trade creditors, banks with unsecured lending)
- Shareholders (any residual)
This priority structure means employees have materially better prospects of recovery than ordinary trade creditors — but only if there are sufficient assets after secured creditors and liquidation costs are paid. In many small company liquidations, there are insufficient assets to satisfy even priority claims in full.
What Employee Entitlements Are Protected?
Wages and Salary
Outstanding wages and salary — including amounts for time worked but not yet paid at the date of liquidation — are a priority claim. This includes base wages, penalty rates, overtime, and commissions that were earned before the liquidation commenced.
Annual Leave
Accrued but untaken annual leave — including any leave loading payable under an award or enterprise agreement — is a priority entitlement in liquidation. Employees should obtain their most recent payslip or contact the liquidator to establish the precise amount of accrued leave.
Long Service Leave
Accrued long service leave is also a priority entitlement. In Queensland, long service leave is governed by the Industrial Relations Act 2016 (Qld). An employee who has reached 7 years of continuous service has a pro-rata entitlement. Employees who have reached 10 years of continuous service have a full entitlement. Both are recoverable as priority claims in liquidation.
Superannuation
Outstanding superannuation contributions that the employer was legally obligated to make under the Superannuation Guarantee (Administration) Act 1992 (Cth) but failed to pay are a priority entitlement in liquidation.
Underpayment of superannuation — sometimes called superannuation theft — is a widespread problem in company insolvencies. It is common for employees to discover, only when a liquidator is appointed, that their employer has been failing to remit super for months or even years. Those arrears are recoverable as a priority claim in the liquidation, and the ATO has broad powers to pursue directors personally through the Director Penalty Notice regime for unpaid superannuation guarantee charge.
From 1 July 2026, the Payday Super reforms require employers to pay superannuation on the same day as wages. This change will significantly reduce the accumulation of unpaid super in future insolvency events.
Redundancy Pay
Redundancy pay (retrenchment pay) is a priority claim in liquidation, but it ranks after wages, leave entitlements, and superannuation. Under the National Employment Standards in the Fair Work Act 2009 (Cth), employees with at least one year of continuous service are entitled to redundancy pay when their employment is terminated by reason of redundancy.
The NES redundancy scale ranges from 4 weeks pay (1–2 years of service) to 16 weeks pay (9 or more years of service). Award and enterprise agreement redundancy entitlements may differ from the NES scale — the higher entitlement prevails.
Payment in Lieu of Notice
Employees are also entitled to payment in lieu of notice where the employer terminates employment without providing the notice period required under the Fair Work Act or the applicable employment contract. This is also a recoverable entitlement in liquidation and under the FEG scheme.
What Is the Fair Entitlements Guarantee (FEG)?
Even where a company’s assets are insufficient to pay employee entitlements — which is common in insolvencies — eligible employees may be able to claim under the Fair Entitlements Guarantee (FEG) scheme, administered by the Federal Department of Employment and Workplace Relations.
The FEG provides a government-funded safety net covering:
- Outstanding wages (up to 13 weeks)
- Annual leave
- Long service leave
- Payment in lieu of notice (up to 5 weeks)
- Redundancy pay (up to 4 weeks per year of service, capped at 16 weeks)
The FEG does not cover superannuation. Unpaid super must be pursued through the ATO’s enforcement processes, including the Director Penalty Notice regime.
Who Is Eligible for FEG?
To be eligible for FEG, an employee must:
- Be an Australian citizen, permanent resident, or hold a relevant work visa
- Have been employed by the insolvent company directly (not through a labour hire intermediary)
- Have lost their job as a result of the insolvency event (liquidation, bankruptcy, deed of company arrangement, or receivership)
- Make a claim within 12 months of losing their job or the insolvency event commencing (whichever is later)
Senior executives earning above the FEG cap (indexed annually) will have their entitlements calculated on the capped weekly rate. Employees who are company officers may also face restrictions on FEG eligibility.
How to Make a FEG Claim
- Contact the liquidator to confirm the insolvency event and obtain a written calculation of your outstanding entitlements
- Lodge a FEG claim through the Federal Government portal at employmentassistance.gov.au
- Provide supporting documents: payslips, employment contract, and the liquidator’s statement of outstanding entitlements
- The Department will assess your claim and, if approved, advance payment directly to you
The Government then becomes a creditor in the liquidation for the amounts advanced to employees under FEG, stepping into the employees’ priority position.
What Happens to Superannuation in a Liquidation?
Unpaid superannuation is recovered through a different process to the FEG scheme. Key avenues include:
- Liquidator recovery: The liquidator can pursue unpaid super as a priority creditor claim against the company’s assets
- ATO reporting: Employees can report unpaid super to the ATO through the ATO’s online tool. The ATO has broad enforcement powers and can pursue the company and its directors
- Director Penalty Notices (DPNs): The ATO can issue a DPN to directors personally, making them personally liable for unpaid superannuation guarantee charge if the DPN is not satisfied or the company does not enter administration within 21 days
The director personal liability exposure from unpaid superannuation is a serious and often underestimated risk. For more on director liability in insolvency, see our guide on Insolvency Lawyers Brisbane.
For Directors: Obligations to Employees When the Company Is in Financial Difficulty
Directors facing financial difficulty have ongoing obligations regarding employee entitlements. Continuing to operate while insolvent and incurring additional employee obligations — wages, leave accruals, superannuation — without a reasonable prospect of payment can expose directors to personal liability under the insolvent trading provisions of the Corporations Act.
The safe harbour defence under section 588GA provides protection for directors who take genuine steps to restructure the company and prevent insolvency. But this defence requires timely, documented action — not a retrospective attempt to characterise poor decisions as restructuring.
Directors must also remember that in a voluntary administration, employees continue to accrue entitlements during the administration period. Post-appointment wages are a priority expense of the administration under section 443A of the Corporations Act, ranking ahead of the administrator’s own remuneration in certain circumstances. This can significantly affect the economics of a restructuring.
Practical Steps for Affected Employees
If your employer has gone into liquidation or you have received notice that insolvency proceedings are imminent:
- Contact the liquidator — Obtain a written statement of your outstanding entitlements. Do not rely on verbal assurances.
- Gather documentation — Payslips, your employment contract, and evidence of accrued leave entitlements.
- Check your super fund — Log into your superannuation fund to check recent contribution history. If contributions are missing, report to the ATO immediately.
- Lodge a FEG claim promptly — The 12-month time limit applies strictly. Do not delay.
- Seek independent legal advice if your entitlements are disputed or you believe the liquidator’s calculation is incorrect.
How Boss Lawyers Can Help
Whether you are an employee seeking to recover unpaid entitlements from a failed company, or a director navigating obligations to your workforce in financial difficulty, Boss Lawyers provides strategic commercial advice in insolvency matters across Queensland.
Our team advises on priority claims in liquidation, director liability for employee entitlements, ATO Director Penalty Notice exposure, and the safe harbour pathway. Contact us on 1300 267 711 or visit our Insolvency Lawyers Brisbane page.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances. Boss Lawyers Pty Ltd | Level 27, Santos Place, 32 Turbot Street, Brisbane QLD 4000 | 1300 267 711 | ABN 38 143 136 645.
