Answer By law4u team
Employees are critical stakeholders in a company’s liquidation process. The Insolvency and Bankruptcy Code (IBC) accords special priority to employee dues, recognizing the need to protect workers' wages and dues during the insolvency resolution and liquidation.
Treatment of Employees’ Dues During Liquidation
Priority of Workmen’s Dues:
Wages and dues payable to workmen for the 24 months preceding the liquidation commencement date are given high priority and must be paid before unsecured creditors.
Definition of Workmen:
Workmen generally include employees engaged in manual, supervisory, or clerical work as defined under labor laws, but specific definitions may vary.
Operational Creditors and Other Employees:
Other employees not classified as workmen fall under operational creditors and are paid after secured and financial creditors.
Inclusion in Liquidation Estate:
All employee dues become part of the liquidation estate managed by the liquidator.
Verification of Claims:
Employees submit claims to the liquidator, who verifies and admits these claims for payment.
Timely Payment:
Liquidators ensure payment of admitted dues from the realized assets as early as possible in the liquidation process.
Legal Protection:
The IBC and related labor laws provide safeguards to employees ensuring dues are cleared promptly and their rights protected.
Important Points:
- Employee dues up to 24 months before liquidation get priority over most creditors.
- Operational creditors include some employees not classified as workmen.
- Employees must file claims for dues during liquidation.
- Payment to employees helps maintain morale and protects workers’ interests.
Example:
XYZ Ltd. goes into liquidation. The liquidator receives wage claims from the company’s workmen amounting to ₹2 crores for the last 24 months. These claims are admitted and prioritized for payment before unsecured creditors. The liquidator pays these dues from the asset realization before distributing funds to other creditors.
