F&B closures: retrenched, unpaid staff may be ahead of most creditors – but will they ever see their salaries?
If there is enough to go round, the next question is when they will be paid
[SINGAPORE] The sudden closure of Twelve Cupcakes last week once again shone the spotlight on axed workers left in the lurch, unsure if they will receive owed salaries and Central Provident Fund (CPF) contributions.
The company has called for a meeting with creditors on Nov 24 to, among other things, provide a statement of its affairs and the estimated amounts of creditors’ claims.
The closure affecting the bakery chain’s 80 staff is only the tip of the iceberg. From Jan 1 to Oct 23, 2,431 food and beverage (F&B) businesses have gone bust, Deputy Prime Minister and Minister for Trade and Industry Gan Kim Yong said in Parliament on Wednesday (Nov 5).
According to the Ministry of Trade and Industry, four in five of those in business for up to five years had never made a profit.
What doesn’t help is how several F&B establishments did not have orderly winding up procedures or proper compensation packages. This left many of their staff in financial crisis, especially those who live from pay cheque to pay cheque.
Beyond money concerns, there are also ruptures in identity and purpose. Adding to the complications is the case of online travel agency Agoda, whose severance agreement warned affected staff against exercising their right to notify government bodies of the layoff.
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The Business Times spoke to insolvency and employment lawyers on the rights of workers to salary arrears, and laws that cover job losses.
Can retrenched workers get paid?
Lawyers said companies undergoing liquidation are liable for all debts, including the salaries and CPF contributions of their workers.
However, according to the Insolvency, Restructuring and Dissolution Act 2018, a company’s assets must first be used to pay the costs and expenses of winding up, said Withers KhattarWong restructuring and insolvency special counsel Lam Zhen Yu.
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Ian Lim, partner and head of employment and labour practice at TSMP Law, said that secured creditors – unlike unsecured creditors – are first in line, even over employees’ salaries and CPF contributions.
“Secured creditors would typically be banks or other financial institutions, or asset-based lenders,” he said. As for unsecured creditors, they could include suppliers who have provided goods or services without taking specific assets as collateral.
For the case of Twelve Cupcakes, these could be suppliers of baking ingredients or kitchen appliances.
If there are sufficient assets after paying off secured creditors, the remaining assets will go to salaries, said Lam.
However, payments to workers are capped at either S$13,000 or five months of salary per employee, whichever is lower. Claims for wages above this limit will be considered “unsecured claims” without priority, said Lam.
Tris Xavier, associate director and head of integrated property group at Yuen Law, explained: “This strikes a balance between paying employees their due while ensuring that the assets or monies of the company are not swallowed up by highly paid employees.”
When it comes to CPF contributions owing, the priority is lower than that of workers’ salaries, said Xavier.
“This is subject to a cap of 12 months’ equivalent of contributions, up to 12 months before or after winding up began,” the insolvency lawyer said.
Is repayment of salaries and CPF guaranteed?
With secured creditors ahead and a failed business’ dire finances, there is no guarantee that retrenched or terminated workers will be repaid, said lawyers.
“If a liquidator… finds that the company has nothing realisable or sellable… then no monies can be paid out even under the priority,” said Xavier.
TSMP’s Lim shared that most liquidation cases would see a company with at least some funds, which is where secured creditors come in.
“It’s most likely that for companies in dire financial straits, the secured creditors would account for most of the available or remaining assets,” the employment lawyer said.
Nevertheless, Withers KhattarWong’s Lam believes it is not a “foregone conclusion” that employees will not receive their salary claims. And when there is enough to go round, the next question is when.
“Employees have to be prepared that any distributions to them will take place in months or even more than a year later,” he said.
What about retrenchment benefits?
While retrenchment benefits are not a statutory right in Singapore, affected workers are entitled to these benefits if it is specified in their employment contracts.
Lam said retrenchment benefits are prioritised directly after salary claims in the liquidation process. However, the payout is limited to five months’ salary or S$13,000 – whichever is lower – for each employee.
The reality, however, is that a clause in employment contracts in Singapore promising severance pay or retrenchment benefits for workers is rare, according to TSMP’s Lim.
That said, for unionised companies such as Twelve Cupcakes, there is a possibility the business could have a collective agreement with the union – which would mean that there should be contractual retrenchment benefits payable, said Lim.
But as there has been no mention of such retrenchment benefits thus far, the employment lawyer said that a couple of things could be happening at this stage.
“It may suggest that no collective agreement has been signed – or more likely at this point, that the employees and the unions are just more focused on collecting the salaries and CPF contributions owed,” he explained.
Can workers seek recourse from the authorities?
Apart from turning to their unions, workers have other avenues for recourse, said legal experts.
Amarjit Kaur, head of employment law at Withers KhattarWong, suggested that as a first step, employees should engage with the insolvency process. This includes filing a proof of debt for their salary and other employment claims with the liquidator.”
She added: “This will ensure that the liquidator is aware of the employees’ claims and will update them if there is any recovery for their claims.”
Thereafter, employees may consider raising concerns to the Ministry of Manpower (MOM) regarding unpaid wages, and to the CPF Board for the non-payment of CPF contributions.
Workers could ordinarily go to the Employment Claims Tribunals, where employees could make salary-related or wrongful dismissal claims, said TSMP’s Lim.
Non-unionised employees have a claim limit of up to S$20,000 for either such claim, while the claim limit for unionised employees is S$30,000 per claim, according to information from MOM.
Companies must notify MOM of retrenchment if they have more than 10 employees. Directors – and not just the company – are guilty of criminal offence for not contributing CPF.
In the case of Twelve Cupcakes, the Food, Drinks and Allied Workers Union has said it would assist the workers with salary-related claims and job-assistance support, as well as connecting them to the labour movement’s network, such as NTUC’s Employment and Employability Institute.
The Tripartite Alliance for Dispute Management will also assist employees of Twelve Cupcakes who need to file a proof of debt for their salary and other employment claims with the liquidator.
Additionally, the CPF Board will file a proof of debt with the liquidator to recover outstanding CPF contributions for September and October.
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