Everyone

Insolvency and employment

When a business becomes insolvent, there can be uncertainty about what happens next for both the employer and their employees.

When is a business insolvent?

A business is insolvent when it cannot pay money owed to its creditors, for example, Inland Revenue, banks, suppliers, landlords, employees and contractors. In most cases, when a business fails and is unable to pay its debts, what happens to the business will depend on its structure.

If the business is a company, it will go into liquidation or receivership. If the business is a sole trader or partnership, the owners themselves may become bankrupt.

Steps employees can take

Whether a business is a company, partnership or sole trader, employees need to follow a process to receive any money owed, for example, unpaid wages, holiday pay or redundancy compensation.

The first step is to find out the type of business that is involved and what has happened, including whether the business has gone into liquidation or receivership (or, if it’s a sole trader or partnership, whether the owners have gone into bankruptcy).

For a company, you can do this by searching the Companies Register.

New Zealand Companies Register - New Zealand Companies Office(external link)

For a sole trader or partnership, you can do this by searching the Insolvency Register.

Insolvency Register - New Zealand Insolvency and Trustee Service(external link)

The next step may be to file a claim with the liquidator or official assignee explaining what is owing. For more information, see:

Types of creditor – New Zealand Insolvency and Trustee Service(external link)

When a business becomes insolvent, employees can contact a Community Law Centre for advice or contact their union.

Community Law – Free Legal Help throughout New Zealand(external link)