Government departments should not take a course of action that blocks an employee receiving their due wages ever. They are the innocent victims in this. I was involved in something similar with a former employer and due to bad timing I am still owed $21K by the company which I'm never going to see.
The company went into administration when I was serving out my notice period so I didn't qualify for any government entitlement protection schemes because I didn't loose my job due to the administration. The NSW treasury put a garnish on the companies bank accounts, due to outstanding payroll tax, after they had signed a Deed Of Company Arrangement which took any money they made and the company went into liquidation soon after. As there was nothing left of the company any creditors with out insurance got screwed. The major suppliers to the company which all had insurance were the ones that pushed for liquidation so they could get they money back via the insurance. The payroll tax issue was because the NSW government wanted payroll tax for every employee of the company not just he ones based in NSW which was pretty dodgy to say the least. In the end they didn't get much of the tax anyway because the garnish made it impossible for the company to function so they cut their nose off to spite their face.