Salaries Due to Employees of Liquidated Companies

Mr Zainal Sapari asked the Minister for Law (a) from 2013 to 2015, how many workers did not receive their due salaries when their companies were liquidated; and (b) whether the Ministry will consider amending legislation to provide for the salaries of workers as a first charge on a company's liquidation.

Under the law, a private liquidator may be appointed to wind up the company, but if no private liquidator is appointed, the Official Receiver shall be the liquidator of the company. The amount that creditors can recover from winding up an insolvent company depends on the amount of assets the company has for distribution. Employees' salaries are paid out of the liquidation proceeds in priority to other unsecured claims, after deducting the liquidator's costs and expenses of winding up. Employees are thus paid as preferential creditors, second only to the liquidator's costs and expenses. This follows the practice in other jurisdictions, such as the United Kingdom, Australia and New Zealand.

Windings up conducted by private liquidators typically involve insolvent companies with assets available for distribution, including to employees. However, the Ministry does not have statistics relating to insolvent companies that are wound up by private liquidators.

In comparison, windings up conducted by the Official Receiver typically involve insolvent companies with little or no assets available for distribution. Even where assets are available, they tend to be insufficient to cover the Official Receiver’s costs of winding up the company.

If the liquidator's costs and expenses of winding up are not granted first priority, the liquidator may not be willing to act in the winding up of the company. As this could ultimately prejudice the interests of the company’s creditors as a whole, there are no plans to amend the legislation.