4. My place of work has suddenly shut down and I haven’t received my salary since last month. I think that the company is in huge financial difficulty and it is likely to become insolvent. Do I have the chance to get back my salary (or part of my salary)?
You can try to recover part of your salary or to get a certain amount of compensation in the following ways.
i) Bankruptcy or Winding-up proceedings
If an employee is owed wages, wages in lieu of notice, severance payment or other contractual sums by the employer, then the employee can (as a creditor) apply to the Court for a bankruptcy order (if the insolvent employer is not a limited company) or a winding-up order (if the insolvent employer is a limited company).
Upon the making of a bankruptcy order or a winding-up order by the Court, the trustee or the provisional liquidator (who is normally the Official Receiver) takes immediate steps to recover and preserve the employer’s assets. Those assets are normally sold by the trustee or liquidator, and the proceeds of sale, after the deduction of necessary expenses, are used to pay debts owed to the employer’s creditors. If you want to know more about bankruptcy or winding-up proceedings, please go to the topic Bankruptcy and Winding-up.
If you have successfully obtained a bankruptcy order or winding-up order from the Court, then you are entitled to receive payment out of your employer’s assets in preference (with priority) to most other creditors of your employer in respect of wages, wages in lieu of notice and severance payments under the statutory limit. In the preference debts, you can recover wages up to a maximum of $8,000. You can also recover wages in lieu of notice (not exceeding one month’s wages or $2,000 whichever is the lesser) and severance payments not exceeding $8,000.
However, any arrears of wages, wages in lieu of notice or severance payments that exceed the statutory limit are non-preferential debts, and the employee is treated as an ordinary creditor on claiming that exceeded amount.
In view of the time limit for wages to qualify for preferential payment in bankruptcy or winding-up proceedings, you should not delay taking legal action by relying on any mere promises by your employer or by some third party to pay your arrears of wages at a future date. This may result in the loss of entitlement to receive payment as a preferential creditor if the promises to pay are not kept.
For more information regarding employer insolvency, please see the Labour Department’s webpage.
ii) Protection of Wages on Insolvency Fund
During the bankruptcy or winding-up proceedings against your employer, you can also apply for ex-gratia payment from the Protection of Wages on Insolvency Fund (“the Fund”). The Fund is administered by the Protection of Wages on Insolvency Fund Board, and covers:
- arrears of wages (during the four months before the last day of the employee’s service) with a maximum amount of $36,000;
- wages in lieu of notice (up to the equivalent of one month’s wages) with the maximum amount of $22,500; and
- severance payment with the maximum amount of $50,000 plus 50% of any excess entitlement.
The Commissioner for Labour will NOT approve any application for these payments for:
- wages for service rendered more than 4 months before the last day of service;
- wages for which the relevant application is made more than 6 months after the last day of service;
- wages in lieu of notice or severance payment for which the relevant application is made more than 6 months after the date of termination of the employment contract.
For more information about the Fund, please see the Labour Department’s webpage.