Closing an insolvent business: what to do about staff entitlements

Start with the conversation, not the silence

When a business is closing and there is not enough money to pay everyone, staff usually feel the uncertainty first. Waiting for the next payroll date or hoping a last-minute deal appears only makes the conversation harder. A short, honest update now is better than letting rumours fill the gap. It also gives people time to make their own plans.

Be careful not to sound more certain than you are. If you do not yet know whether the company will be liquidated, say that clearly. If you do know the business cannot meet wages and entitlements, tell staff what is known and what is still being worked through. Do not make promises about payment dates unless the money is actually available.

Get the employee file in order before anyone asks

In a shutdown, the paper trail matters. Keep payroll records, employment contracts, rosters, leave balances, super records and termination details together. If a liquidator later needs to assess claims, incomplete records slow everything down and create avoidable disputes. Clean records also help you answer staff questions without guessing.

Check that names, start dates, hours, pay rates and leave balances are accurate. If anything is missing, fix it now while the information is still fresh. Keep copies of any notices, emails and texts about stand-downs, reduced hours or termination discussions. That file may become the difference between a manageable claim process and a messy one.

Source: Official guidance

Understand what the FEG may cover

If the company goes into liquidation, employees may be able to seek help through the Fair Entitlements Guarantee. The scheme can cover some unpaid entitlements, including up to 13 weeks of unpaid wages, annual leave, long service leave, payment in lieu of notice and some redundancy pay. It does not cover everything, including superannuation or bonuses.

That matters because staff often assume every unpaid amount will be picked up somewhere. It will not. The practical step is to separate what is potentially covered from what is not, then keep each employee’s entitlement record clear. If you are unsure how the process works, check the current Fair Work guidance or speak with an insolvency professional before you say more than you can support.

Do not overstate what you can pay

A common mistake is trying to calm people with broad assurances. Saying everyone will be looked after, or that a payment is probably coming next week, can create more trouble if the position changes again. In an insolvency setting, vague promises can also create false expectations about timing and priority. Keep the message plain and factual.

If you know some amounts will remain unpaid, say so carefully and without drama. Explain that the business is under severe financial pressure and that any final outcome will depend on the insolvency process. If a liquidator is appointed, direct staff to the correct claim pathway rather than trying to answer every question yourself. That keeps the conversation honest and reduces confusion.

Take the next step before the pressure spreads

Before the last payroll cycle, make a final check of wages, leave and redundancy records, and decide who will speak to staff and when. Keep that message short, accurate and consistent. Then gather the company records that would be needed if a liquidator or employee claim process starts. That preparation saves time when everyone is under pressure.

If you are closing an insolvent business and need help working through employee entitlements, liquidation questions or the next practical step, call CRP today about insolvency services. CRP coordinates independent qualified professionals who can review the position and help you respond in an orderly way. This information is general only and is not legal advice.