Your rights if your employer is insolvent

When your employer goes insolvent, many times there is a risk of losing job or the money that is pending with your employers. As an employee, there are certain rights available to you if your employers become insolvent and the business is transferred or taken over by someone else. You should know how to claim money that you are owed by your insolvent employers. You should have a fair idea of the insolvency process and how insolvency can affect your employment.

In insolvency, your employers may have no money in full that they owe to you and other employees. Your employers can be in deep debt and in order to meet those debts, they will opt for special arrangements such as transfer of their business ownership to someone else. Following transfer of the business, you get new employers and your employment terms and conditions may be affected by this transfer.

Types of insolvency

There are different types of insolvency that a business may have to face and there are different kinds of people who are allowed to handle them. For any employer running a company or a limited partnership firm, the insolvency may induce the following changes:

  • Administration.
  • Liquidation.
  • Receivership.
  • Voluntary agreement with creditors.

If the employer is not a registered entity but is an individual, his insolvency can initiate one of the following:

  • Bankruptcy or sequestration in Scotland.
  • Voluntary agreement with creditors.

The employer cannot be considered as insolvent if he or she closes his or her business at his or her will or his or her company is dissolved.

Your employment rights during transfer of the business

When your insolvent employer decides to transfer his or her business, you can continue with your job. After transfer of the business, your employment rights remain protected with the new employer. If your original employer could not pay you salary, the amount they owed to you will remain protected under your employment rights and you are likely to recover your pending wages after completion of the insolvency procedure.
Discharge from your job

If your employer doesn’t have enough funds to pay for your salaries while he or she has not gone insolvent yet, he or she may not be interested in paying the money to you. In such a case, your employer may want to temporarily suspend you from your job.

Working for your original employer

Sometimes it happens that your original employer may not be able to pay for your salaries but may want you to continue with the job, with an expectation that the business will get back on track very soon. In such a case, your employment rights remain protected and you are entitled to receive your redundancy pay even if the business closes down later.

Who are insolvency practitioners?

To deal with the insolvency affairs of your employers, insolvency practitioners or official receiver are appointed. They will be responsible to pay off the debts of all the creditors including you from the amount realised from the sale of the assets of your employer. The insolvency practitioner may act as:

  • Administrator.
  • Liquidator.
  • Receiver.
  • Supervisor , in case of a voluntary arrangement.
  • Trustee in bankruptcy cases.

Your claims as an employee

When an insolvency practitioner is appointed to look after the insolvency affairs of your employer, you can approach the insolvency practitioner with your claims. However, there is no guarantee that you will get back your money in full. It will depend upon the fund realised from the sale of the assets of your insolvent employer.

Your wages and holiday pay are considered as 'preferential debt' and must be paid out of the assets of your insolvent employer. These debts are paid out on the priority basis before certain other types of debts.

The refund of full payment is not certain, but employees can claim to recover their basic minimum debts that can be made available to them with a special arrangement from the National Insurance Fund. These basic debts claims can include
Redundancy pay.

  • Wages of maximum of eight weeks.
  • Holiday pay of maximum six weeks.
  • Notice pay.

There is an upper limit on the weekly pay that you can claim for. Earlier it used to be £380 per week but from 1 February 2011 onwards, it’s £400 per week. If your weekly pay exceeds this amount, you cannot claim for your weekly pay. But before making any claim, make sure whether the company is officially insolvent or just in difficult times.

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