Employees rights when a business is facing insolvency

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Updated: 19th January 2021

What are Employee Rights During a Company Insolvency Procedure


When your company is deemed insolvent because it is unable to keep up with financial obligations it could face a number of insolvency procedures, including administration, liquidation, or receivership. This not only threatens the continuity of the business itself but also the careers and interests of its employees. If you're concerned about employee rights during insolvency consider the information in the following paragraphs:


Transfer of Undertakings (Protection of Employment) – TUPE

TUPE regulations introduced in 2006 are used to govern employee rights during insolvency and protect employees from being made redundant or losing money owed to them during company takeovers and business transfers. If you're considering a company voluntary arrangement (CVA) or a voluntary administration it is imperative to consider the rights of employees before committing to move forward. Payroll expenses and employee contract terms will determine how feasible a recovery may be. In some cases you may be able to use administration to eliminate employee contracts without taking on large employee liabilities.

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Employee Rights During a Pre-Pack Administration

TUPE regulations are especially important to consider during pre-pack administration, as the company's assets are essentially being transferred to a new company. The employees may be considered a mandatory asset class which means the directors would have no choice but to honour existing employment arrangements. In other words, it would be unlawful for the new company to terminate the contracts of the old company's employees, and such, an action may be considered a breach of TUPE. If you fail to adhere to the laws governing employee rights in the UK you could be sued by some of your employees or you could be accused of wrongful or fraudulent trading.


Analysing the Particulars of Your Situation

Since there are so many variables involved with employment contracts and TUPE regulations it is important to assess each situation on a case-by-case basis. We can help you determine how to proceed with a course of action that will provide the best outcome for your company, its creditors, and its employees. However, in order to provide the most accurate advice possible we need to have an idea of what kind of contracts you have with employees, what kind of business transfer or undertaking you're planning, and your goals and preferences as a director.

If you're a company owner or director and you're curious about employee rights during insolvency, don't hesitate to contact us for free confidential advice. You can also reach us on our director's information hotline – 0800 2316040. With 100 offices stretching from Inverness down to Exeter, Real Business Rescue can offer unparalleled director advice across the UK.

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