What Are My Rights If My Employer Goes Into Administration or Insolvency?

December 1, 2017

The administration process is designed to give a business breathing space so an administrator can come in, evaluate the circumstances and make the necessary changes to try and rescue the Company or parts of its business.

The best result in an administration process is that the business returns to profitability and continues trading without the loss of any jobs. Unfortunately, this rarely happens.

A business entering administration is an indicator that something serious has gone wrong. If your employer has entered administration, it is essential you are prepared for every eventuality and understand what rights are afforded to you.
In this blog, I’ll talk a little about the administration process and explain what rights you have.

If you have any specific questions related to your employer, I recommend you speak directly with the Administrator's on-site staff in the first instance as they will understand the situation better than anyone else.

 

What's the difference between administration and liquidation?

Before we begin talking about the administration process, it’s worth highlighting that there can be significant differences between administration and liquidation.  Both of these are types of corporate insolvency where an insolvency practitioner is appointed to control the business.

When a business has entered administration, an administrator is appointed to explore whether the business can be rescued. Often, the business, or some part of the business, is still viable and the administrator will be able to save it.

For example, outdoor clothing retailer, Blacks, entered administration in early 2012 but that didn't spell the end for the beloved brand. Blacks was bought by high street giant JD Sports and nursed back to profitability.

Businesses which enter Administration will quite often continue to trade in some form at least for a short time while the administrator assesses the options and possibilities for a rescue.  However, even with administrations a business will normally have some level of immediate redundancies and can also simply be closed down immediately.

When a business enters liquidation, however, it is far more common for it to be closed immediately.  However, that isn't always the situation and it is possible for the Liquidator to continue to trade all or part of the business while a buyer is sought.

 

What generally happens to employees at the start of an administration/liquidation?

The administrator or liquidator will very quickly assess the business and decide whether to continue trading the business (or parts of it) or to close the business. Decisions on redundancies will also be made very quickly.

Usually all staff will be spoken to by the administrator or liquidator on the first day and they will explain what the plan is. This will often include employee redundancies.

In practice there tends to be no formal employee redundancy consultation process, even for larger businesses.

 

What if I'm being kept on?

All employees who continue to work for the company while it is in administration or liquidation will be paid their full normal salary at normal times for the period of the insolvency. In practice, any salaries outstanding from before the insolvency appointment would normally also be paid to those employees who are being kept on.

 

What if the part of the business I work for is sold?

If the business or part of it that you work for is then successfully sold as a going concern to a new business the existing employees will transfer over to the new employer on exactly same terms, conditions, salary level, length of service and so on under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations.

 

What if I'm being made redundant?

The main point to make is that there is a Government safety net for employees made redundant when their company goes into administration or liquidation that generally ensures they get paid what they are owed.

In general, the Government will pay employees:

  • Arrears of salary/wages and commission;
  • Accrued but untaken holiday pay;
  • Statutory notice pay - 1 week after 1 month’s service, going up to 1 week per year of service (up to a maximum of 12 weeks)
  • Unpaid pension contributions;
  • Redundancy pay - you will not qualify for redundancy pay unless you have two years' qualifying service.

There are a few restrictions/drawbacks with this Government safety net. These are:

  • The the maximum the Government will pay out is based on a weekly wage limit of £475.  Higher earners may, therefore, still be owed some money which ranks alongside all the other creditors claims
  • It can take several months to calculate and pay out these claims;
  • Where an employer in administration doesn't comply with the redundancy consultation requirements an Employment Tribunal usually gives an automatic award for unfair dismissal. This award ranks alongside all the other creditors claims and is not paid out under this Government safety net.

 

Is your business struggling?

If your company is struggling, don't wait until it looks hopeless. Get in touch with 180 Advisory Solutions today for free, confidential advice.

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GLASGOW LIVING WAGE EMPLOYERBarry John Stewart and George Dylan Lafferty are authorised to act as insolvency practioners in the UK by the Institute of Chartered Accountants of Scotland. Company Registration Number SC 477598 | VAT Registration Number 192 5146 03 | Data Protection Registration A1056203 | FCA Registration Number 766693 | Registered office: 2nd Floor Suite 148, Central Chambers, 11 Bothwell Street, Glasgow G2 6LY.