COMPANY BANKRUPTCY (Payment to employees from proceeds of auction)

Mr Cheo Chai Chen asked the Minister for Labour whether he will consider introducing legislation so that when a company has been declared bankrupt and will be holding a public auction of its assets, the company will use the proceeds from the auction to pay its employees their outstanding salaries first before paying its creditors.

Dr Lee Boon Yang: Mr Speaker, Sir, to ensure that workers' interests are protected in the event of their company being placed under liquidation, the Companies Act provides for certain claims by workers to be accorded priority over unsecured debts. What this means is that in a winding up process, when the assets of the company are sold, the proceeds from the sale would be distributed in accordance with the priority accorded in the Companies Act after the secured debt has been paid.

Under the Act, claim for wages ranks after the costs and expenses of winding up. However, priority claim for wages, together with the quantum of retrenchment benefits, is subjected to five months' salary or $7,500, whichever is the lesser. Any amount claimed in excess of this limit will not be accorded priority but will rank pari passu with other unsecured debts.

The Member for Nee Soon Central may also wish to know that retrenchment benefits, workmen's compensation, Central Provident Fund contributions and remuneration payable to workers in respect of vacation leave are also given priority under the Act.

To provide adequate protection for workers made redundant as a result of their company being wound up, the Companies Act was amended in 1993 to specifically provide for retrenchment benefits to be paid to employees affected by the winding up. In the event that the quantum of retrenchment benefits is not spelt out in the contract of service or collective agreement, the amount of compensation could be decided by the Commissioner for Labour.

It should, however, be pointed out that notwithstanding the priority accorded to workers' claims, there would be situations where workers may get little or no payment at all from the proceeds of sale if the assets available for distribution are insufficient to meet the claims of secured creditors.

Sir, the law as it stands provides sufficient protection to workers who are affected by the winding up of their company.