Written by: Eloise Turnbull
The Accounting Times recently reported that “Annual insolvencies have been rising across all sectors since 2022.”
Reflecting this trend, ASIC revealed that between 1 July 2023 through 30 June 2024, there were 1,310 reports of unpaid employee entitlements in Queensland alone.
ASIC also provided a breakdown of the value ranges for these unpaid wages, shown in the table below.
Reports of Unpaid Employee Wages in Queensland
| Debt Range | No. of Reports |
|---|---|
| $1–$1,000 | 22 |
| $1,001–$10,000 | 100 |
| $10,001–$50,000 | 67 |
| $50,001–$150,000 | 23 |
| $150,001–$250,000 | 3 |
| $250,001–$500,000 | 4 |
| $500,001–less than $1.5 million | 1 |
| $1.5 million–$5 million | 1 |
| Unknown | 16 |
| Not Applicable | 1,073 |
| Total reports of unpaid wages | 1,310 |
Source: 2023–2024 ASIC Insolvency Statistic Series 3.1.6
Reports of unpaid employee wages increased by 31.5% compared to the 996 reports recorded during the 2022–2023 financial year.
With insolvencies on the rise, more people are asking: are company directors liable for unpaid wages, superannuation, and/or annual leave when a business folds?
Are Directors Liable for Unpaid Employee Entitlements?
Traditionally, operating a business through a company can be seen as a way of protecting personal assets from a business’ creditors. This limited liability is known as the “corporate veil”. The corporate veil can protect directors and shareholders from becoming personally responsible for company debt.
Unlike a sole trader, company directors are not typically held responsible when the company goes under. Read more about how businesses are structured.
However, the ATO has recently extended its reach to company directors, making them liable to PAYG, super guarantee and GST liabilities, even after they resign.
Directors Can Be Personally Liable
Underpayment of an employee’s wages and other entitlements can also lead to directors and or/ managers becoming personally liable for the payment. The Fair Work Act imposes an “accessorial liability” on directors and/ or manager where they are” involved” in the contravention (violation) of the Act.
When are Directors Personally Liable?
A director will likely be liable for unpaid entitlements where they:
- had knowledge of the facts of the contravention,
- are an intentional participant in the contravention with actual knowledge,
- turned a blind eye to the contravention regardless of whether that they knew that what occurred was a contravention.
Essentially, if a director helped, encouraged, knowingly took part in, or planned the company’s violation of the Act in any way, they can be held personally responsible.
Director Violations That Lead to Wage Liability
Director violations (contraventions) may include:
- underpayment of wages,
- failure to pay allowances and holiday entitlements, and
- making unlawful deductions from an employee’s wage.
What It Means to Be ‘Involved’ in a Contravention of The Act
To be “involved” in a contravention, the director had been found to have:
- aided, abetted, counselled or procured the contravention; or
- induced the contravention, whether by threats or promises or otherwise; or
- been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
- conspired with others to affect the contravention.
Criminal Charges for Liable Directors
As of 1 January 2025, intentionally underpaying employee wages or entitlements can be a criminal offence.
According to the FairWork Obudsman, “An employer may commit a criminal offence where they:
- were required to pay an amount:
- to an employee such as wages or paid leave entitlements
- on behalf of the employee, or for their benefit, such as superannuation or a salary sacrifice arrangement
- have intentionally done something that intentionally results in those amounts not being paid on or before the day they were due.
An employer can be either an individual or a company. However, if the employer made an honest mistake that resulted in the underpayment, it’s not necessarily considered a crime.
If the employer is convicted, they may have to pay monetary fines, do prison time, or both.
When to Speak to a Lawyer About Unpaid Entitlements
If you’re owed wages, superannuation, or other entitlements and your employer is unwilling or unable to pay—especially if the business is in financial trouble or has gone into liquidation—it’s a good idea to speak to an employment lawyer.
A legal professional can help you understand your rights, assess whether company directors may be personally liable, and guide you through the process of making a claim. The sooner you seek advice, the better your chances of recovering what you’re owed.
You may also be eligible to recover unpaid entitlements under the Fair Entitlements Guarantee. Read below to learn more about this guarantee and if you qualify.
Fair Entitlements Guarantee
The Fair Entitlements Guarantee (FEG) helps employees recover unpaid entitlements after their employer became insolvent or bankrupt.
If you make an effective claim within 12 months of the company going bankrupt or into liquidation, the Fair Entitlements Guarantee can pay some of your owed entitlements.
According to the Department of Employment and Workplace Relations website, you may be able to claim:
- your unpaid wages (up to 13 weeks)
- your unpaid annual leave and long service leave
- payment in lieu of notice (up to five weeks)
- redundancy pay (up to four weeks per full year of service)
Fair Entitlement Guarantee Eligibility
You may be eligible for the Fair Entitlement Guarantee if:
- your claim must be lodged with 12 months of losing your job or the company’s liquidation/bankruptcy, and
- your job was lost less than six months before, or due to, your employer’s liquidation or bankruptcy, and
- you’re owed one of the above entitlements, and
- you were an Australian citizen or the holder of a permanent visa or special category visa that allows you to stay and work in Australia at the time your employment ended.
Fair Entitlement Guarantee Ineligibility
You may not be eligible for the Fair Entitlement Guarantee if:
- you were a contractor,
- you are (or were within 12 months before liquidation/bankruptcy) a director of the company, or a spouse or relative of the director of the company.
Disclaimer:
The information contained in this article is for general informational purposes only and is not intended to provide legal advice or substitute for the advice of a professional. This information does not consider your personal circumstances and may not reflect the most current legal developments. Should you need advice, please contact our firm for targeted information relating to personal your situation.
Greenhalgh Pickard’s Employment Law Team
