By Ann Haldon
If your employer is struggling financially, you might be worried about losing your job. Many companies go into administration rather than liquidation, however, which means that it’s not necessarily the end for the business.
Companies can be restructured and sold on as a ‘going concern,’ with staff being transferred over to a new employer under strict protective regulations. Unfortunately, other companies do enter a liquidation process which effectively closes them down, and results in the unavoidable loss of all jobs.
So let’s have a look at what happens in instances like these, to give you an idea of what it means for you as an employee.
Your employer goes into administration
The process of administration provides a breathing space for your employer to obtain professional advice, and consider all possible options to save the company. They may be experiencing temporary cash flow problems, in which case there’s a chance the business could be sold on.
If this happens, the first 14 days are crucial for employees.
- If you’re made redundant during this period, you become an ‘ordinary creditor’ and are placed at the bottom of the list for payment.
- If you’re retained as an employee after the initial 14-days, this makes you a ‘preferential creditor’ and puts you in a better position financially if you’re made redundant later on.
What you can claim as a preferential creditor
You’ll be entitled to receive specific payments from the sale of assets should the company be closed further down the line. If that happens you should approach the insolvency practitioner dealing with the process, and obtain the relevant claim form.
You’ll be able to claim for:
- Any salary or commission outstanding for the four months leading up to closure, up to a maximum of £800 in total.
- Up to six weeks of accrued holiday pay.
- Some occupational pension payments.
Any payments due to you prior to the four-month timescale, or from other sources, are paid under ‘ordinary creditor’ status.
It’s often the case, though, that insufficient funds are generated from the sale of business assets to pay most creditors. In these instances you can turn to the National Insurance Fund for help.
The National Insurance Fund (NIF)
The National Insurance Fund holds cash reserves that cover payments including redundancy, salary and holiday pay. You may be entitled to make a claim in this way if:
- You’ve not been able to obtain full payment as a preferential creditor.
- You were made redundant during the first 14 days of administration.
- The company was liquidated straight away.
At the time of writing, the limit on payments via the National Insurance Fund is £475 per week, with £14,250 being the maximum amount of statutory redundancy pay available in each case.
You can claim for:
- Up to eight weeks’ wages.
- Up to six weeks’ holiday pay.
- Unpaid pension contributions.
- Your statutory notice period if no notice was given by your employer, or you worked your notice but haven’t been paid.
If you need to claim for statutory sick pay or maternity/paternity/adoption pay, these are made via the Department of Work and Pensions, and HM Revenue and Customs respectively.
When the period of administration ends
The worst-case scenario at the end of administration is that the company closes down. All jobs will be lost, but you may be eligible to claim the redundancy pay mentioned above, depending on certain criteria.
You must have worked for your employer for a continuous period of two years in order to be eligible, with the amount due being based on your weekly pay, age, and the length of time that you’ve worked at the same place.
This is how redundancy pay is calculated, with a maximum of 20 years’ employment being applied:
- Below the age of 22: half a week’s pay for each complete year with your employer.
- Aged between 22 and 40 inclusive: a full week’s pay for each completed employment year.
- Aged 41 and over: one and a half week’s pay for each year worked with your employer.
The process of transferring to a new company
If your employer’s business has been sold to another company, specific rules protect your rights as an employee. During an administration process, the insolvency practitioner is entitled to request changes to employee contracts if it means the company stands a better chance of survival (known as ‘permitted variations’), but apart from that your contract should be unaffected.
The Transfer of Undertakings (Protection of Employment), or TUPE legislation, ensures that employment terms and conditions at the point of transfer are protected in the main. This is a reassuring aspect in what is often an unsettling experience for members of staff.
What happens if the business is liquidated?
During a liquidation process, all business assets have to be sold in order to generate as much cash as possible to repay creditors. Unfortunately this often means that employees get very little, if any money, which is where claiming via the NIF is extremely helpful.