Company bankruptcy

Following closure, a company may be declared bankrupt. This means that the company can no longer meet its obligations. Employees with a wage claim against a bankrupt company should note the following:

  • In the event of bankruptcy, a liquidator is appointed. The liquidator makes an official request for claims to the bankruptcy estate in the Icelandic Law Gazette [Lögbirtingarblaðið].
  • Employees have two months from the date of the liquidator’s announcement to lodge a claim to the bankruptcy estate. VR will take care of this for those members who wish. The claim will be lodged once VR has received the documentation regarding the case.
  • Wage claims constitute priority claims to a bankruptcy estate. This means that they are paid first if there are any assets available in the bankrupt estate. If there are no assets available, wage claims are paid from the Wage Guarantee Fund [Ábyrgðasjóður launa], up to a maximum of ISK 633,000 for wages due after 1 July 2018. The maximum guarantee for the payment of accumulated holiday pay is ISK 1,014,000. Unpaid pension contributions outstanding from the 18 months preceding the date of the bankruptcy ruling are paid, but older claims are not.
  • VR can help its members to collect wage claims from bankrupt companies if they so request. This service is free of charge. VR calculates the amount of the claim and lodges it with the relevant bankruptcy estate. If you pay into a pension fund other than the Pension Fund of Commerce [Lífeyrissjóður verslunarmanna] and have private pension savings elsewhere, you will need to provide the information yourself (you can obtain a copy of the claim from VR when it is ready, upon request).
  • It is very important to keep as much information regarding your employment relationship as possible, as this will make it easier to process the claim. Your payslips are the most reliable evidence in the event of a dispute over the size and type of claim. VR must receive all information as soon as possible.

You must send the following to VR as soon as you are able:

  • employment contract, if there is one
  • payslips for the last 6-12 months
  • information on your leave status
  • information on your work arrangements, e.g. working hours and job title

If the company you are working for goes bankrupt, it is important for you to register and apply for unemployment benefit from the Directorate of Labour, to be able to receive such payments.

Under the rules of the fund, unemployment benefit is paid from the date on which the company is declared bankrupt, if you have registered with the fund from that date. Unemployment benefit is paid from the date of the bankruptcy ruling and in respect of wages during the unpaid notice period. These payments are subsequently deducted from the amount you receive from the bankruptcy estate/Wage Guarantee Fund.

This process takes around 6-8 months from the date of the liquidator’s announcement in the Law Gazette. Firstly, there is a two-month period for receiving claims. Then the liquidator processes the claims received. You can assume that this will take 2-3 months − although the process could end up being shorter or longer. Finally, if the liquidator has no objections to the wage claims received, they are passed on to the Wage Guarantee Fund. You can expect it to take a further 2-3 months for processing to be completed and payments to be made.

If you wish to pay your VR membership fees from your unemployment benefit, you should indicate this specifically in your unemployment benefit application.