Last month, online supermarket Supie went into voluntary administration, owing $2.1 million to more than 4,000 creditors with only $179,000 left in the bank. 118 employees of Supie found out not only that they had lost their jobs, but that it was unlikely they would be paid for their last 2 weeks of work, or for any outstanding holiday pay.
Thanks to an anonymous donor, some wages were able to be paid out. However, the first liquidators report shows that $120,797 in wages and holiday pay is still outstanding to 89 employees. So, what are employees of a failed company entitled to?
The short answer is that employees are not guaranteed anything. The Companies Act 1993 sets out the priority of payments upon liquidation of a company. The liquidator’s job is to sell all remaining assets of the company (that haven’t been used as collateral in securing any loans) and use those funds, together with the remaining funds of the company, to pay out any creditors and the liquidator themselves. After the liquidator and secured creditors have been paid out, preferential creditors are next in line. Under the Companies Act, this includes employees in respect of:
- unpaid salary or wages earned in the four months prior to liquidation;
- untransferred payroll deductions and donations made for an employee in the four months prior to liquidation;
- unpaid holiday pay payable to the employee as of the date of liquidation;
- untransferred KiwiSaver contributions, child support payments, and/or student loan payments deducted from the employee’s salary or wages; and
- any compensation for the employee being made redundant, if the employee’s contract provides for this.
Despite this, there is no guarantee that employees will receive their unpaid wages when their employer fails. The Companies Act also puts a cap on how much an employee can be paid out preferentially – as of 2021, this is $25,480 per employee. Any sum owed that exceeds this amount gets sent to the back of the line with any unsecured creditors of the company.
Liquidation can put any creditor in a difficult position, but it is particularly difficult for an employee who may lose their hard-earned wages as well as their employment.
Special thanks to Summer Clerk Lydia Munro for her assistance in writing this article.