Bankruptcy and liquidation

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

Find out about employee entitlements when a business goes into liquidation, administration, or is abandoned.

On this page:

Closing a business

A business may go through the process of insolvency before it permanently shuts down. This is when a business is unable to pay its debts.

The process may include either or both:

  • voluntary administration
  • bankruptcy, or
  • liquidation.

Sometimes a business may close permanently without going through a formal process.

We can only help when the ABN status of the business is listed as ‘active’ or ‘in administration’.

Tip: Find the business’ ABN status

Use the Australian Business Register’s ABN Lookup to find the business’ status.

You can use the Australian Securities and Investments Commission – Published notices search to see if a business has appointed an external administrator or liquidator. Just search the business name or Australian Company Number (ACN).

Voluntary administration

Before a business stops operating it may go into voluntary administration.

Voluntary administration is an insolvency process where an external administrator is appointed to the business. The administrator will work out if the business can keep operating or should go into liquidation.

When a business is in voluntary administration, we can provide advice and support for employees who have unpaid entitlements.

For more information, read our Library article – Voluntary administration.

Bankruptcy or liquidation

Employee support when a business is bankrupt or liquidated

We can’t help employees get unpaid entitlements once a business is in bankruptcy or liquidation.

Employees may be eligible for help through the Fair Entitlements Guarantee.

When a business is going into bankruptcy or liquidation, 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.

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

  • 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.

Redundancy during bankruptcy or liquidation

In most circumstances, a small business employer doesn’t have to pay redundancy pay when making an employee redundant.

An exception to this rule is when a non-small business employer downsizes and becomes a small business employer during bankruptcy or liquidation. When this happens, the small business 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.

Abandoned businesses

Sometimes an employer may close their business and abandon it without going into liquidation or bankruptcy. 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. 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:

  • ‘Limited’ or ’Ltd’, or
  • 'Proprietary Limited' or 'Pty Ltd'.

Winding up an abandoned company

To access the FEG, employees may need to ask ASIC to wind up the abandoned company.

Read ASIC's Regulatory Guide to find out:

  • 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 such as employee entitlements and paying taxes.

Illegal phoenix activity can negatively impact employees, contractors and the wider community because:

  • 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. For more information, go to Australian Taxation Office – Phoenix Taskforce.

Report illegal phoenix activity

The Australian Taxation Office (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 1800 060 062.

You can also report illegal phoenix activity by:

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

Source reference for page: Fair Work Act 2009 section 121

Tools and resources

Related information

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