What to do if your Employer goes insolvent?

With the recent collapse of Jessops, Comet, HMV and Blockbuster, employees are finding themselves in a situation where they are having to assess their rights and entitlement. 

Employee Rights

There is a difference between an employer being in liquidation and administration. If your employer is in liquidation, there is no continuing business and you will have no job. Where your employer is in administration, an administrator will be appointed and will be brought in to see if the business can be kept alive and whether a buyer can take over the whole of the business.

Administration

In administration, as an employee you will not be able to make any immediate legal claim against your employer because the law imposes a “moratorium” on any claims brought against the company, which means that nobody can bring a claim unless they have consent of either the Court or the administrator.

Administrators have a period of 14 days after their appointment to decide if they want to dismiss the employees to save costs. If they do so within the 14 day period, those employees become creditors of the administration so will often be part of a long list along with suppliers and other creditors.

If the administrator retains you as an employee beyond the 14-day period then you become a preferential creditor and you may have a better chance of succeeding in a claim for your outstanding salary and redundancy payment if the business no longer continues to trade.

Liquidation

If your employer is insolvent then under the Insolvency Act 1986 employees are entitled to be paid their salary for 4 months immediately up to the insolvency and this is capped at £800.00. Employees are also entitled to be treated as a preferred creditor for holiday pay (which is up to 6 weeks) and certain occupational pension payments. Any additional amount that employees are owed relating to periods for longer than 4 months ranks as a debt along with the other bulk of the creditors.

What if your employer has no funds to pay you?

If your employer has insufficient funds to pay you from the business then you can apply to the National Insurance Fund for any outstanding payments including salary, notice pay and redundancy. To qualify your employer must be insolvent and your employment needs to have terminated. The National Insurance Fund also has caps. They have a cap of £430.00 a week for unpaid salary up to a maximum of 8 weeks. Six weeks holiday pay to a maximum of £800.00.

For further information please contact Kate Baker or Terry Chetwood on 01392 274006