Career and legal advice

How to react in the event of bankruptcy

When an employer files for bankruptcy, your lost income is covered by the Employees Guarantee Fund (LG). We have gathered a number of tips on how to make a claim to LG yourself.

Regardless of whether you have been aware of the risk of bankruptcy for a long time or it has come like a bolt from the blue, it is an uncomfortable and inconvenient situation when one's employer goes bankrupt.

On top of suddenly being without a job, you find yourself in a situation quite different from if you had resigned or been given notice.

On this page, we have gathered a number of tips on how to respond if, for example, your salary is unpaid but your employer has not filed for bankruptcy. You will also find answers to what steps to take and which ones you can consider taking when bankruptcy is filed.

The initial process of bankruptcy

When a company is declared bankrupt, the Probate Court (Skifteretten) appoints a trustee to liquidate the bankruptcy estate. Therefore, the trustee will typically be the one who sends the employees home and informs them that they are suspended and do not have to show up for work unless they are informed otherwise.

As a suspended person, you must be available for the bankruptcy estate. After the bankruptcy petition, the trustee has 2 weeks to decide what should happen to the employees in the bankruptcy estate. Typically, the trustee gives notice within the deadline that you are terminated and released.

You will receive compensation for income, both for unpaid wages in the time leading up to the bankruptcy and non-payment during your notice period. The compensation is administered by the Employees' Guarantee Fund (LG).

When reporting your lost income to LG

You can only file a claim with LG when the company has been declared bankrupt and you have been terminated and released from duty, or when you have made a termination for breach. 

At the same time, you need to be thorough when submitting your claim. Once you have submitted your claim with the accompanying documentation, you will not be able to change it again. Therefore, be sure to calculate correctly and include all the information needed.

Make sure you have your documentation ready electronically so you can attach the information LG needs to process your claim.

Proceed to LG at borger.dk

You will find LG on borger.dk, together with a more detailed guide to completing the claims form in the event of bankruptcy.

Make claim to LG

Q and A – Bankruptcy and LG

When can I make a claim to LG about lack of pay?

You can only submit your claim about unpaid salary/wages once you have been given notice and released from duty, or when you have made a termination for breach. 

When should I submit a claim to LG at the latest?

You must file a claim no later than 4 months from the day the company was declared bankrupt. However, note that LG's payment cannot exceed DKK 160,000.00 net, which means that if you have receivable pay for work performed for several months, on top of salary during a notice period, you may risk that not all months are covered, even if the 6-month period is complied with.

Should I always terminate my employment for breach?

If you want to be part of a possible business transfer from the bankruptcy estate to a new company or want to be available for the bankruptcy estate, do not terminate the employment for breach. There is nothing to prevent you from making a claim and then awaiting further developments. Furthermore, there is nothing to prevent you from holding off and not making a claim in the first place. It follows from the provisions of the Bankruptcy Act that you do not lose a receivable by having patience, as long as the receivable is not older than 6 months from the deadline, which is the day on which the bankruptcy petition is received by the Probate Court. However, note that LG's payment cannot exceed DKK 160,000.00 net, which means that if you have receivable pay for work performed for several months, on top of salary during a notice period, you may risk that not all months are covered, even if the 6-month period is complied with.

I have unpaid salary, but my employer is not declared bankrupt - what do I do?

If your have not received your salary, but the company has not yet filed for bankruptcy, a claim is made for non-payment of salary as described above. If the company is not able to pay the liabilities that you claim, the company can file for bankruptcy with the Probate Court. If you contact IDA for advice and let us submit your claim, IDA can also handle the bankruptcy petition.

What can I get compensation for from LG?

Through LG, you receive payment for:

  • Salary, holiday pay and pension for which you do not receive payment, as well as for your notice period. Failure to make a pension contribution can be significant if you have insurance through your pension scheme, which is paid through and conditional on the monthly pension contribution. In those cases, you should contact your pension company and find out what the periodic non-payment means for your insurance policies.
  • Lack of additional payment for public holidays
  • The value of allowances and benefits such as bonuses, free car, telephone or piecework profit. LG does not provide coverage for per diem allowances and entertainment expenses, travel allowance and expenses that your employer should have reimbursed etc.

I have been sent home/suspended - but not released from duty - what does that mean?

When declaring bankruptcy, the Probate Court appoints a trustee to handle the bankruptcy estate. The trustee has two weeks after the bankruptcy to decide how to handle the bankruptcy estate. Typically, the trustee will notify employees within the deadline that they will be terminated and released. If you have not made a termination for breach and you are not released, the trustee may ask you to perform work for the bankruptcy estate, in which case you are obliged to work, but it will be the trustee who will pay your salary for work performed for the bankruptcy estate.

When should I submit a claim to LG at the latest?

You must submit a claim no later than 6 months from the day on which the application for the company's bankruptcy was received by the Probate Court. However, be aware that LG's payment cannot exceed DKK 160,000.00 net, which means that if you have receivable pay for work performed for several months, on top of salary during a notice period, you may risk that not all months are covered, even if the 6-month period is complied with.

How can IDA help me?

IDA can help with your claim to LG with specific comments on filling out the form as well as to go through it for you once you have completed it. In that case, you must create a case on mit.ida, and in the notification to LG give the lawyer in IDA a power of attorney to access your information inside the actual notification on borger.dk. You will find links to both at the bottom of the article.

What happens to my holiday?

LG pays your receivable holiday allowance according to the rules of the Holiday Act. In your claim, it is therefore important that you state what you have left of unpaid leave. It follows from the Holiday Act that LG is entitled to consider as much holiday as possible as held during the notice period. Main holidays of 15 days (over the summer) must be notified three months before the start of the holiday, while other holidays of up to 10 days must be notified at least one month before the start of the holiday. This means that from the time you are released or have terminated your employment for breach and until the end of your notice period, there must be room for both giving the notice and the holiday being notified. This means that LG considers your holiday to be taken during the notice period, regardless of whether you take time off or start a new job.

What do I do in the time between bankruptcy and payment from LG?

LG's case processing times vary, but you should expect at least 35 working days from the time you submit the claim until you receive your outstanding payment. For some, going almost two months without an income can be a problem, even if they receive it at a later point. In those cases, you can apply for a membership loan without interest and fees with IDA. The size of the loan is based on your monthly salary excluding your pension contribution, AM contribution and deduction percentage. The loan is granted per. expired month and against set-off in the payment from LG.

Can I take a new job immediately?

If you have been given notice and released from duty, you can take a new job immediately, and for a period of up to 3 months receive double income. However, you should be aware that your duty of loyalty still applies until the end of the notice period. However, it is very rare for the trustee to enforce the duty of loyalty. If you have terminated your employment for breach, you can also accept a new job and also receive double income. Since you have terminated the employment for breach, the employment has ceased with immediate effect and thus your duty of loyalty has lapsed.

However, you must be aware that whether you have been given notice and released or you have terminated your employment for breach, you must continue to respect good marketing practice in accordance with the Marketing Act and your duty of confidentiality.

What you need to submit

  • Employment contract
  • Termination and release
  • Pay slips for the last 6 months
  • Time sheets if you are paid on an hourly basis

You may need to use and attach additional relevant information depending on which benefits and allowances are included in your individual employment.