A Primer on Insolvency for Labour and Employment Lawyers

  • February 03, 2020
  • Danny Nunes, DLA Piper


The subject line - “Payroll” - seems innocuous enough given that it is due the following day. As the company’s president (or CEO, CFO or really any management level position), an email from the accounting department regarding the company’s payroll would not normally be cause for concern. However, after opening the email it soon becomes clear that the situation is far more dire than expected. The company will not be able to make payroll the following day. The ripple effect of failing to make payroll could be devastating for the company’s fortunes - employees will be understandably concerned and will not be inclined to keep working, the company’s operations may suddenly freeze and the company’s customers may look elsewhere fearing that the company cannot be relied upon to meet their demands.

In the aforementioned example, the company’s failure to make payroll is a stark example of its insolvency, however, it is not necessarily the case that it would be the only example. Perhaps the company has failed over time to pay some of its suppliers in due course or perhaps tax remittances are in arrears. A company’s insolvency is very often the result of a progressively worsening financial situation that takes months to finally manifest itself in such a drastic way as failing to make payroll. However, for the purposes of this article, the failure to make payroll is a poignant example of the potential employment and labour issues that can arise in an insolvency.