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How does bankruptcy or insolvency impact an unfair dismissal claim?

24/11/2020

Where an employee has declared bankruptcy, or an employer has become insolvent, the ability to make or continue an unfair dismissal claim can be impacted. In this article we look at the different types of bankruptcies and insolvencies and how each impacts an unfair dismissal claim.

 

Bankruptcy

Bankruptcy involves a process whereby a person who cannot pay their debts surrenders their assets and control of their finances in order to obtain protection from legal action by creditors.

The Fair Work Commission has previously held that an employee who made an unfair dismissal application after they were declared an undischarged bankrupt, could continue their claim. Conversely, the Fair Work Commission has indicated that a person who makes an unfair dismissal application before they are declared an undischarged bankrupt, is unlikely to be able to continue their claim.

Voluntary administration

When a company is placed into voluntary administration, an administrator is appointed to investigate the company’s financial position and to make a recommendation to creditors as to whether the company should come under administration, be wound up or return to its normal operations.

An employee is still entitled to make and pursue an unfair dismissal application while the company is in administration, however the Fair Work Commission has a discretion to adjourn the matter until such time as the future position of the company is determined.

Receivership

When a company is placed into receivership, a receiver is appointed to collect or protect property for a person who claims to have an interest in that property. As with voluntary administration, an employee is still entitled to pursue an unfair dismissal application while the company is in receivership.

Liquidation

When a company is placed into liquidation, a liquidator is appointed to realise the company’s assets and distribute the proceeds of those assets to creditors. A liquidation can be brought about by a court, by creditors or by members.

Ordinarily, an employee can continue an unfair dismissal application against a company in liquidation. However, if a resolution for the voluntary winding up of the company has been passed by creditors due to insolvency, the employee will no longer be able to make or pursue an unfair dismissal application without leave of a court.

How do I check whether my employer is insolvent or in liquidation?

If you have been dismissed and believe that your employer is insolvent, a lawyer will be able to assist you in identifying the status of the company and whether an application can be made and pursued. A lawyer may also be able to assist you in recovering any unpaid employment entitlements that have arisen as a result of the insolvency, either via the courts or the Fair Entitlements Guarantee Scheme.

 

Disclaimer: This article should not be construed as legal advice and is not intended as such. If readers wish to obtain advice about anything contained in this article, they should speak with a lawyer and discuss their individual circumstances.