FOR CONCERNED DIRECTORS
For directors who are worried about their team almost as much as themselves.
What Happens to Employees When a Company Liquidates?
Here's what happens to employees when a company liquidates.
If you're facing liquidation, it's genuinely common to worry more about your staff than about yourself — people who trusted you with their livelihood, who you've worked alongside for years. The good news, as much as there is good news in this situation: Australia has a real, legislated safety net for employees in this exact circumstance, called the Fair Entitlements Guarantee (FEG). It won't make the situation painless, but it does mean your team isn't left with nothing if the company can't pay them directly. This guide walks through what FEG actually covers, what it doesn't, and what you as a director should understand about your own obligations to your team through this process.
What the Fair Entitlements Guarantee actually covers.
FEG is a government safety net for employees who lose their job because their employer goes into liquidation or bankruptcy, and the company doesn't have enough funds to pay them directly. It can cover: Unpaid wages — up to a maximum of 13 weeks, for the period before the liquidator was appointed. Unpaid annual leave — in full. Long service leave, where applicable. Payment in lieu of notice. Redundancy pay, up to a capped amount based on years of service.
What FEG does NOT cover.
This is the part that catches people out most, on both sides: FEG does not cover unpaid superannuation. This is a common and understandable point of confusion. Instead, the ATO lodges a claim in the liquidation on employees' behalf for the unpaid Superannuation Guarantee Charge, and if there are funds available, the liquidator pays that amount to the ATO, who then distributes it to each employee's individual super fund. It's a separate mechanism, not covered under the FEG payment itself. Directors and their relatives are generally excluded. If you, or a relative of yours, were also an employee of the company, you're typically not eligible to claim FEG for your own entitlements — this is specifically to prevent the scheme being used by the very people who controlled the company's finances.
Who's actually eligible.
For an employee to claim FEG, they generally need to: Have lost their job because of the employer's insolvency (or been terminated within six months before, or any time after, a liquidator's appointment). Be owed at least one of the covered entitlements. Lodge a claim within 12 months of the liquidation or bankruptcy. Hold Australian citizenship or an eligible visa allowing them to live and work in Australia at the time their employment ended. Contractors are generally not eligible — FEG applies to employees specifically.
How the process actually works for employees.
Employees apply through FEG Online Services or a claim form, submitted to the Department of Employment and Workplace Relations. A few honest, practical points worth passing on to your team if you're going through this: It's not automatic — the government reviews and verifies employment records before approving a claim, so there's a genuine process, not an instant payment. It typically takes 4-10 weeks, depending on how quickly employment records can be verified — faster than waiting on the liquidation itself to resolve, but not immediate. If they're rehired by a new entity with continuous employment, they may lose FEG eligibility for the original claim — worth knowing if a related business is considering picking up former staff.
Talk to someone before this gets harder than it needs to be.
Worrying about your team is a good instinct, not something to feel guilty about — and getting proper advice early is genuinely the best thing you can do for them, not just for yourself.
Frequently asked questions
Can I tell my staff what's happening before it's official?
This is a genuinely sensitive judgment call, and worth discussing directly during a consultation — there's a balance between transparency and not creating panic or triggering entitlement claims prematurely, and the right approach depends on your specific timeline and circumstances.
Will my staff resent me, or blame me personally?
This is one of the hardest emotional parts of the whole process, and there's no way to promise it won't be difficult. What I can say from my own experience is that being honest and doing right by your team through a hard process — rather than going quiet or disappearing — matters more to most people than the fact the business closed at all.
Does FEG apply if the company goes into voluntary administration instead of liquidation?
Generally, no — employees aren't typically eligible for FEG merely because a company has entered voluntary administration or is operating under a Deed of Company Arrangement. Their employment generally needs to have actually ended due to the insolvency for FEG to apply.
What if I genuinely can't afford redundancy payments at all?
This is exactly the kind of situation FEG exists for — if the company can't pay, eligible employees have a real path to recovering what they're owed through the government scheme, rather than simply losing it.
Once I've decided, are there legal notice requirements I need to follow for staff?
Yes — once a path is chosen, timing and legal notice requirements do matter and can vary by circumstance. This is general information only; a free, confidential consultation can walk through what applies to your specific situation.
Does the liquidator decide when my staff are terminated, or do I?
Once a liquidator is appointed, they generally take over that decision as part of managing the company's affairs — employees are typically terminated at that point, which is also what triggers their FEG eligibility. This is general information only; a free, confidential consultation can walk you through the specific sequence for your situation.
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