Insolvency

Insolvency is a financial situation where a company cannot pay all its debts as and when they fall due. This might lead to bankruptcy or liquidation. It's an important concept in business as it can impact employees, creditors, and the overall economy.

What insolvency means for employees

Under the Corporations Act, a company is insolvent if it cannot pay all its debts as and when they become due, and directors can be personally liable if the company keeps trading while insolvent. An insolvent company may go into voluntary administration or liquidation. Employees owed wages, leave and redundancy pay are priority creditors, and redundancy pay under the National Employment Standards is payable when employment ends because of the employer's insolvency. For example, if a company goes into liquidation, employees may claim unpaid entitlements through the Fair Entitlements Guarantee.

Read our guide to redundancy pay and see voluntary administration.