Meaning
Claim hierarchies in insolvency proceedings dictate the order in which the remaining assets of a company are used to satisfy creditors. The statutory severance priority places employee compensation above common commercial debts and tax obligations. This protection ensures that workers receive their legal termination pay even when a firm is fully liquidated.
It applies to all valid employment contracts terminated due to company closure or bankruptcy.
Payment Order
Liquidation committees must pay out the wage and social insurance arrears before settling any claims from suppliers. The statutory severance priority is a fundamental rule that prevents shareholders from stripping assets before employees are made whole. Only secured creditors with a lien on specific property rank higher in the distribution chain.
Calculation Cap
Termination payments are limited by the local average wage multiplied by a factor set by labor law. The statutory severance priority covers the amount up to this cap, while any excess may be treated as a general unsecured claim. This ensures a fair distribution of the limited pool of funds among all affected staff.
Protected Category
Pregnant workers and those with long term illnesses receive enhanced protection under the law. The statutory severance priority applies to the full length of service for these individuals. Courts often prioritize these specific payouts to avoid social unrest during a mass layoff or factory closure.
