What Happens to My Entitlements If My Employer Goes Bankrupt?

When a company goes into liquidation (also called 'winding up'), a liquidator is appointed to sell the company's assets and pay its debts. As an employee, you become an unsecured creditor — meaning you're owed money but there may not be enough assets to pay everyone. Employee entitlements do get priority over other unsecured creditors under the Corporations Act 2001, but in practice, many liquidated companies have very few assets.

This is where the Fair Entitlements Guarantee (FEG) becomes essential. FEG is a government safety net that covers certain unpaid entitlements when an employer enters liquidation or bankruptcy and can't pay what they owe.

FEG covers five types of unpaid entitlements: (1) Up to 13 weeks of unpaid wages — this includes your ordinary pay for hours already worked but not yet paid. (2) Unpaid annual leave and long service leave — your full accrued balance at the time of termination. (3) Payment in lieu of notice — up to 5 weeks depending on your age and length of service. (4) Redundancy pay — up to 4 weeks per full year of service, capped at a maximum amount indexed annually. (5) Unpaid superannuation is NOT covered by FEG — the ATO has a separate process for recovering unpaid super through the SGC mechanism. FEG payments are capped at a maximum weekly wage equivalent (indexed annually — check the FEG website for the current cap).

Step 1: Wait for the official liquidation. FEG only applies once a liquidator or trustee has been formally appointed — not when the business simply 'closes down.' Step 2: The liquidator should contact you, but don't wait for them. Go to the FEG website (dewr.gov.au/fair-entitlements-guarantee) and check if your employer is listed.

Step 3: Submit your FEG claim online. You'll need: your employment details, pay records, any termination letter, and proof of your entitlements (payslips, contract, award).

Step 4: FEG will assess your claim against the company records and the liquidator's report. Step 5: If approved, FEG pays you directly and then seeks to recover the money from the company's remaining assets.

The entire process typically takes 6-16 weeks from claim submission to payment.

You must submit your FEG claim within 12 months of the date the company entered liquidation or bankruptcy. This is a hard deadline — claims submitted after 12 months are generally rejected unless there are exceptional circumstances. Do not assume the liquidator will handle everything for you.

As soon as you learn your employer is in liquidation, start gathering your records and submit your claim as early as possible. Common reasons for delay include: not realising the company was formally in liquidation (as opposed to just 'closing'), waiting for the liquidator to contact you, and difficulty gathering pay records.

The short answer? Don't let these delay your claim beyond 12 months.

FEG doesn't cover: superannuation (report to ATO separately), bonuses or commissions not yet earned, reimbursement of expenses, payments under a contract for service (contractors), or entitlements for employees of certain excluded entities (state government businesses, sole traders, partnerships where the employer isn't a company). If you're a contractor (not an employee), you cannot claim FEG regardless of the circumstances. If you're unsure whether you were an employee or contractor, seek legal advice — the legal test considers the substance of the relationship, not just what the contract says.

There are warning signs that an employer may be heading towards insolvency: consistently late pay, bounced payments, failure to pay super on time, inability to pay suppliers, and high staff turnover. If you notice these signs: (1) Keep meticulous records of all hours worked, pay received, and entitlements accrued. (2) Check your super fund quarterly to ensure contributions are being made. (3) Report unpaid super to the ATO immediately. (4) Request payslips for every pay period and save them outside of work systems. If the worst happens, these records will make your FEG claim much faster and easier to process.