If an employer enters into insolvency then it is understandably an extremely anxious and worrying time for the employees. This is a situation many workers have found themselves in with the recent collapse of City Link, and the not-too-distant failure of retail outlets like Comet, HMV and Blockbuster. But insolvencies are not just prevalent in the retail sector; they are reflected nationwide in all industry sectors, and occur regardless of the macroeconomic climate.
Thankfully, there are special arrangements for employees who are dismissed as a result of the insolvency of their employer. The National Insurance Fund can guarantee a basic minimum of payments to cover redundancy and other contractual payments, within limits, and aims to pay 80 percent of all claims within three weeks of a claim being made.
These payments are subject to legal limits. The maximum weekly amount an employee can receive is £464.00 per week, and this is limited to a predefined period. Unfortunately, this same scheme does not offer any protection to agency workers or self-employed contractors. Agency workers should always contact their agencies to see where they stand, while the first port of call for employees should be the administrator of their former employer.
The different types of insolvency
If you work for a company that has become insolvent, this can mean one of the following four things:
- Administration – this occurs when an employer asks an administrator to come into the company to try and keep it going.
- Company liquidation – the company is closed and its assets are sold to pay its creditors.
- Receivership – similar to liquidation but it’s usually instigated by a single creditor that has lent money to the company securely, such as a bank. The assets are then sold to repay that creditor alone.
- Creditor voluntary liquidation – a process designed to allow an insolvent company to close voluntarily. The decision to liquidate is made by a board resolution but instigated by the directors.
What are your rights?
If you’re owed money by the insolvent company, you should claim it through the insolvency practitioner, who is the independent professional who administers the insolvency. In some instances i.e. if a company rescue is being attempted or the business is being sold, you might be asked to continue working. This will not affect your rights to redundancy pay if the business closes at a later date. If the business is sold to a third party, your employment rights will be protected. This includes any pay you might be owed.
How can you claim the money you are owed?
The insolvency practitioner should send you the claim forms you need. If they don’t, contact them in writing to ask for the forms. If you’re not sure who to write to, contact Companies House using the details listed towards the bottom of this page.
How much can you expect?
The National Insurance Fund does not guarantee you’ll receive every penny you’re owed by your employer, but you will be able to claim for the following:
- Redundancy payments
- Up to 8 weeks’ wages, including a payment if the employer failed to follow ‘collective consultation’ rules
- Up to 6 weeks holiday pay
- Statutory notice pay, which starts at 1 week for a month of service, and rises to 1 week for every year of service (up to a maximum of 12 weeks
- Unpaid pension contributions
- A basic award for unfair dismissal
- Maternity pay – claimed from a special HMRC helpline
You must also be given at least the notice period stated in your contract or the statutory minimum notice period, whichever is longer. You can claim statutory notice pay if:
- You worked your statutory notice period without being paid by your employer
- You were dismissed without receiving your full notice period
- You did not work your full notice period
The statutory notice period is the minimum legal notice period your employer has to give you. This is:
- 1 week’s notice if you’ve been at the company for between a month and 2 years
- If you’ve been employed for at least 2 years, you receive 2 weeks’ notice plus an extra week for every year you’ve worked (up to a maximum of 12 weeks)
If you are a company director and concerned about some of the issues raised here and considering insolvent liquidation then call 08000 746 7575 and speak to a specialist who can help.