Maximum employee preferential claim figure being adjusted

On: 27 August 2018

On 30 September 2018, the maximum employee preferential claim figure in the Companies Act 1993 and Insolvency Act 2006 will be increasing from $22,160 to $23,960.

The Companies Act and Insolvency Act list the order in which the creditors of an insolvent person or organisation must be paid. This includes a list of creditors given a statutory preference over other ordinary, unsecured creditors. Employees are one category of creditors given preference. This means that if an employer owes employees unpaid wages and salaries (including holiday pay and any compensation for redundancy), and becomes insolvent, these amounts must be paid out ahead of debts owed to general unsecured creditors.

The maximum employee preferential claim figure sets the maximum amount that an employee can claim as a preferential payment. If they are owed more than this figure, the remaining amount is treated as an unsecured claim.

Importantly, the preferential claim figure does not guarantee the amount that employees will receive if an employer becomes insolvent.

The maximum employee preferential claim figure is adjusted every three years, to account for any increase in average weekly earnings (total, private sector). The adjustment is calculated with reference to Statistics New Zealand’s June 2018 Quarterly Employment Survey. The current adjustment reflects an 8.1% increase in average weekly earnings since 2015.

The changes to the Companies Act and Insolvency Act are available on the New Zealand Legislation website.

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