Bankruptcy

Bankruptcy is a formal process where an individual, such as a sole trader or business partner, is legally declared unable to pay their debts. This process involves legal proceedings where assets may be used to pay off debts, and certain legal protections are put in place. It's often seen as a last resort and can have significant financial and legal implications. Bankruptcy laws are designed to provide a way out for those overwhelmed by debt, while also protecting creditors to some extent.

What bankruptcy means for employees

In Australia, bankruptcy applies to individuals. A company that cannot pay its debts goes into liquidation or voluntary administration instead. If an employer becomes bankrupt and employees are owed wages, leave or redundancy pay, they can claim as priority creditors, and the Australian Government's Fair Entitlements Guarantee may cover some unpaid entitlements. Redundancy pay under the National Employment Standards is also payable when employment ends because of the employer's bankruptcy. For example, an employee of a sole trader who becomes bankrupt may be able to claim unpaid wages and annual leave through the Fair Entitlements Guarantee.

Read our guide to redundancy pay and see liquidation.