As a director or employee of a company that is entering into administration you may be afraid that your job position is not secure. An administrator’s primary legal obligation is to act in the best interest of the creditors, and in some cases this may mean liquidating the company or selling most of its assets. How would such an outcome affect the status of your employment?
If an administrator manages the business for more than 2 weeks he/she effectively adopts your employee rights as your new employer. This means you have all of the same rights you would as the employee of a company that is not in administration. However, you are still at risk for unemployment because there is a possibility that the business might not make it through administration. If the outcome of the procedure is total liquidation and dissolution then obviously there would be no company left to employ you, but even in such an instance you may be able to obtain compensation.
In a pre-pack administration the administrator arranges to sell the assets of the insolvent company to one or more of its connected directors (or to an unconnected third party) in a process commonly referred to as a “phoenixing.” Since employees are considered a class of company assets their salaries and contracts are included in the pre-pack sale. Because TUPE employment rights and regulations apply to the newly formed company it is unlawful for a phoenix company to terminate the old company’s employees. This presents a significant challenge for some businesses that are trying to execute a successful pre-pack sale, as the new company may not be able to afford the payroll of the old company. Luckily, the UK has employee rights that allow you to file claims against insolvent companies that do not fulfil their employer obligations.
If your employer has entered a formal insolvency procedure and owes you money or has violated your employee rights you can file a claim against them with the Department of Business Enterprise and Regulatory Reform (DBERR). This organisation would then act on your behalf in lodging the claim against the insolvent company. Unfortunately, many times employees are not paid out of insolvency proceedings due to insufficient funds. There are several types of employee claims that can be filed against insolvent companies. Claims for arrears of pay are capped at the statutory limit of £465 per week and includes wages, sales commissions, and salaries. Likewise any amount that the employer owes through a required notice period will be paid to the employee within that £465 per week.
If you’re concerned about how employee rights may impact Administration, voluntary or compulsory, feel free to call us on 0800 644 6080 for a free consultation and we’ll be better able to advise you. We must first make an assessment as to whether or not Administration is in your company’s best interest and until that can be accomplished, there is no way to address what rights your employees may make a claim against.
With 55 offices stretching from Inverness down to Exeter, Real Business Rescue can offer unparalleled director advice across the UK.
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