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Should their employer go bankrupt, an employee's employment contract is terminated with immediate effect. To offset the unexpected loss of income and the inability of the trustee in bankruptcy or the employer's successor to continue the business, the employee is entitled, under certain conditions:
- to their salary for the month in which the bankruptcy occurred, and for the following month;
- to payment of a special allowance equal to 50 % of the notice period which the worker could have claimed if they had been dismissed with notice;
- unemployment benefits if they also satisfy the legal conditions.
Who is concerned
When their employer goes bankrupt, both resident and non-resident employees are eligible for compensation following their employer's bankruptcy. Apprentices may also be eligible for such compensation.
It should be noted that the special allowance provided for in the event of the employer's bankruptcy is subject to the condition of being an employee of the bankrupt business when the bankruptcy is declared;
Therefore, a worker who was dismissed before the date bankruptcy was declared but whose legal or contractual notice period had not expired when bankruptcy was declared is entitled to this allowance, regardless of whether the worker had been exempt from working during their notice period or not.
PrerequisitesApplication for compensation following the termination of the working relationship due to the employer's bankruptcy.
How to proceed
Filing a declaration of claim
In order to collect the amounts provided for if an employer goes bankrupt, the employee must file a declaration of claim with the clerk of the District court presiding over commercial matters.
The declaration of claim is a legal petition allowing the worker to claim the unpaid amounts appearing on the statement of claims.
Unlike the unemployment benefit, which covers the loss of income when a job is lost, the compensation arising from the declaration of claim covers the salary owed by the employer for work actually done.
The declaration of claim must comply with certain formal requirements and be established in writing, preferably in duplicate.
As such, it must specify:
- the employee's surname and first name(s);
- their profession and home address;
- the identity of the bankrupt company;
- their bank details;
- the amount being claimed and the reason for the claim;
- where applicable, the benefits associated with the declared amounts;
- a specific phrase ("j’affirme que ma présente créance est sincère et véritable") ("I confirm that this claim is sincere and true").
- the employee's signature.
The declaration of claim must be filed with the District court presiding over commercial matters which pronounced the bankruptcy (Luxembourg or Diekirch) along with any documents supporting the claim (payslips, invoices, etc.).
In addition to the allowance to which the worker is entitled if their employer goes bankrupt, the employee may specify, in the declaration of claim, other amounts that their employer has not paid (back-pay, compensation for overtime, compensation for days of leave not taken, etc.).
Amounts that may be claimed
Salary claims may, within a certain limit, be considered to be preferential receivable debts, in other words, their payment should be given priority.
Preferential receivable debts are outstanding salaries, wages, and compensation for the last 6 months of work, plus the employee's claims for any compensation arising from the termination of their employment contract (for example, voluntary severance pay as part of a social plan, legal severance pay, or compensation in lieu of notice) or their apprenticeship contract. They must be paid before any other preferential claim, including those guaranteed under the preferential right of the Public Treasury (for example, debts owed to the Luxembourg Inland Revenue).
Of these preferential claims, some are qualified as "super-preferential" because they their payment is guaranteed by the Employment fund (Employment fund). This guarantee is limited to an amount capped at 6 times the reference social minimum wage.
Entitlement to the guarantee arises only when the preferential receivable debts cannot be paid, in part or in full, from the company's available funds within 10 days of the bankruptcy ruling.
For the amount that exceeds this cap, the employees' claims remain qualified as preferential receivable debts.
It should be noted that only claims relating to the last 6 months of work are considered preferential. Beyond that limit, they are mere unsecured debts (unprivileged creditors who would only be repaid after privileged creditors). This 6-month period corresponds to the last 6 months of work actually completed and not to the last 6 months preceding the bankruptcy.
The claims are then verified by the trustee (court-appointed agent replacing the employer in the administration of the bankrupt company), who will submit them to the examining magistrate to be added to the bankruptcy liabilities during the claim verification sessions.
The trustee in bankruptcy then sends the claims to the National Employment Agency (Agence pour le développement de l’emploi - ADEM), which calculates, for each employee, the amount of the debt covered by the guarantee.
Requesting an advance from ADEM
The creditor may request an advance on their super-preferential claims" from ADEM as soon as their declaration of claim is filed, and does not need to wait for the trustee's subsequent verification. This advance will be granted under the following conditions:
- the claim must correspond to more than half of the monthly salary, which is calculated from the average of the 3 months preceding the month in which bankruptcy was declared;
- the employee must send ADEM a copy of their declaration of claim, which was previously filed with the Commercial court.
Such a process does not always allow the employee to immediately collect all of the amounts due, although they may receive at least a portion as an advance.
The documents to be provided are:
- a declaration of claim which is filed with the district court which presides over commercial matters;
- a detailed breakdown of the unpaid compensation, specifying the months and the amount due for each month;
- the employment contract and any riders;
- the payslips relating to the back-pay being claimed, or the last 3 slips received;
It should be noted that, when calculating the compensation, ADEM only considers the outstanding salaries for the months preceding the month in which bankruptcy is declared.
- a bank account identification document. This document should specify:
- the IBAN number;
- the BIC code;
- the bank name;
- the account holder's name;
- a copy of a valid residence permit, with a work permit for those concerned.
Amount of benefits
If the employer goes bankrupt, the amounts paid to the employee (after ADEM has checked the statement of claims) are:
- the salary for the month in which the bankruptcy occurred;
- the salary for the following month;
- an allowance corresponding to 50 % of the notice period the employee would been able to claim in the case of a dismissal.
These paid amounts are capped in the sense that the aggregate of the 3 amounts may not exceed the amount that would have been granted to the employee in compensation and allowances for a dismissal with notice.
The Court declared company X bankrupt on 8 February 2010. An employee who has 5 years' length of service on the day of the bankruptcy ruling is entitled to:
- their salary for February 2010 (= the month in which the bankruptcy occurred);
- their salary for March 2010 (= the month following the one in which the bankruptcy occurred);
- half the legal notice period: one month;
- i.e., a total of 3 months' salary.
To check that this amount does not exceed the amount the employee could have claimed had they been dismissed with notice, the date of the bankruptcy ruling is considered as the fictitious date of notification of the dismissal with notice.
Therefore, an employee who would have been dismissed with notice on 8 February 2010 would have had a 2-month notice period beginning on 15 February 2010 and ending the evening of 14 April 2010. The employee would thus have only collected their salary through to 14 April 2010, which corresponds to a 2.5-month salary period (February, March and 14 days of April). Consequently, the employee's claim would only be accepted for the amount corresponding to 2.5 months' salary.
Conversely, if the bankruptcy ruling had been handed down on 22 February 2010, the employee's notice period would have begun on 1 March 2010 and ended on 30 April 2010. In this case, the employee would have collected 3 months' salary (February, March and April). The trustee would thus have fully accepted the employee's claim for 3 months' wages since it does not exceed the amount which the employee could have claimed if dismissed with notice. In theory, the claimed amount is the gross amount.
It should be mentioned that if a business is transferred, the terminated employment contracts automatically resume exerting their full effect once business resumes after the transfer. However, the resumption of business must occur within 3 months of the cessation of the business, unless this time frame is extended or reduced by an agreement between the transferee, the transferor, the staff representatives, and national trade-union representatives.
Resident employees who becomes unemployed following their employer's bankruptcy are entitled to unemployment benefits from ADEM.
A cross-border worker who becomes unemployed following their employer's bankruptcy may also assert heir rights to unemployment benefits in their country of residence.
Forms / Online services
Modèle de déclaration de créance en cas de faillite de l’employeur