What Happens to Employee Dues When a Company Enters CIRP
Employees at a company entering CIRP face genuine uncertainty — but the law treats different categories of what they're owed very differently, and the distinction between "workmen dues" and provident fund/gratuity amounts is worth understanding before assuming the worst.
The company generally keeps operating — and paying wages
When CIRP is admitted, the Interim Resolution Professional (and subsequently the Resolution Professional) is required to run the company as a going concern wherever feasible — this means employees typically continue working and continue being paid from the company's ongoing operations/cash flow during CIRP, rather than being automatically terminated the moment insolvency proceedings begin. Whether this is actually sustainable depends heavily on the specific company's cash position and whether it can keep operating profitably enough to meet payroll during the process.
What happens to dues that were already outstanding before CIRP started
Wages, salaries and other dues that were already unpaid before CIRP was admitted become claims against the corporate debtor, to be dealt with as part of the insolvency process — either through the eventual resolution plan (which must provide for a minimum payment, generally not less than liquidation value, to operational/employee creditors) or, if the company ends up in liquidation, through the Section 53 priority waterfall.
Where employee dues rank in liquidation
- Workmen's dues for the 24 months preceding liquidation commencement rank pari passu with secured creditors who relinquish their security — a genuinely high priority tier, second only to insolvency/liquidation process costs.
- Dues to employees other than workmen (broadly, more senior/managerial staff not falling within the statutory definition of "workman") for the 12 months preceding liquidation rank at a somewhat lower, but still relatively favourable, tier.
Whether a specific employee qualifies as a "workman" for this purpose depends on the statutory definition under applicable labour law, which generally focuses on the nature of the work (manual, skilled, unskilled, technical, clerical or supervisory work below a certain threshold) rather than job title alone — this distinction genuinely affects where a given employee's claim ranks.
What this means practically for an employee at a company entering CIRP
- Ongoing salary for work performed during CIRP (while the company continues operating) is generally treated as a cost of the insolvency process, expected to be paid as it falls due, not simply added to a pool of pre-existing claims.
- Amounts already owed before CIRP started become claims that need to be filed with the Resolution Professional/Liquidator (typically through a formal claim submission process with supporting documentation) to be considered in the resolution plan or the liquidation waterfall.
- PF, pension and gratuity dues should, in principle, be recoverable outside the general creditor process given their Section 36(4) protection — but employees should still ensure their claims are properly documented and submitted through the correct process, since procedural claim-filing requirements still apply.