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Employment protection during insolvency

If your employer is insolvent and they are closing the business, selling the assets and distributing the proceeds to creditors your employment rights will probably not be protected during a business transfer or takeover. This type of insolvency normally involves bankruptcy or liquidation.

If your employer is insolvent and they are trying to rescue the business your employment rights may be protected in a transfer or takeover. This type of insolvency involves administration or a voluntary arrangement with creditors.

Money owed to you

If your ‘transferring employer’ (the employer you were originally employed by) is going through insolvency proceedings, you might be owed money by your transferring employer. The responsibility to pay you the full amount of the money owed does not transfer with your employment contract to your new employer.

Your new employer is only responsible for the amount left after you have been paid from the National Insurance Fund. You should be able to make a claim for part of it through the National Insurance Fund for:

• salary
• holiday pay (for days taken but not paid)

You cannot claim redundancy pay or notice pay as your job has not ended.

• Your rights if your employer is insolvent

Changes to your employment terms and conditions

During a normal business transfer or take over your new employer cannot change your employment terms and conditions for any reason to do with the transfer. However, in insolvency situations this restriction is lifted. Your transferring employer, new employer or the insolvency practitioner could reduce your pay or change your other employment terms and conditions after the transfer.

Any changes must be made with the intention of making sure the new employer can cope with the transferring workforce, with the outcome that the jobs will be saved. This means that, unlike with a normal transfer, the sole or principal reason for the change must be the transfer itself or a reason connected with the transfer.

The changes must be agreed with employee representatives (reps). The reps are chosen in a similar way to reps who should be consulted in advance of relevant transfers, and could be the same reps.

Workplaces where an independent trade union is recognised

If an independent trade union is recognised in your workplace the reps must be the trade union reps recognised for collective bargaining purposes by the employer.

The trade union reps and either your transferring employer, new employer or insolvency practitioner should then agree the changes to your employment terms and conditions. Their negotiations may be faster than usual in view of pressing circumstances associated with insolvency.

• Trade unions

• Employment contracts and conditions

Workplaces where no trade union is recognised

If no trade union is recognised in your workplace non-trade union reps can agree changes to employment terms and conditions with either the transferring employer, new employer or insolvency practitioner.

Where agreements are reached by non-union reps, the agreement must be:

• in writing
• given to all of the affected employees by the employer, along with any guidance so that the employees can understand it
• signed by each of the non-union representatives

The agreement can only be signed after the employer has given copies to all of the affected employees. If it is not practical for all the reps to sign it, one authorised person can sign on the reps behalf.

The agreement cannot break any of your other statutory employment rights. For example, any agreed pay rates cannot be below the National Minimum Wage.

• The National Minimum Wage rates

Types of insolvency proceedings

The type of insolvency your employer is involved with, will affect what protections you are offered during a business transfer or takeover.

Bankruptcy

If your employer is an individual, or partner in a business, and has gone bankrupt and they sell the business your employment will not transfer to the purchasing company. You may be entitled to insolvency and redundancy payments from the National Insurance Fund.

Compulsory liquidation

Where a company is wound up by an order of the court on grounds that it is unable to pay its debts, your employment will not transfer to a new employer. On the date that the court order is made, all employment contracts end. You may be entitled to insolvency and redundancy payments from the National Insurance Fund.

Creditors’ voluntary liquidation

If your employer has brought in a liquidator to sell the business because it is in creditors’ voluntary liquidation, your employment will not transfer to a new employer.

You may be entitled to insolvency and redundancy payments from the National Insurance Fund.

• Companies house website - liquidation and insolvency guidance Opens new window

Members’ voluntary liquidation

Members’ voluntary liquidation is not an insolvency proceeding, it is a solvent winding up of a company. This means that if your employer goes through members’ voluntary liquidation your employment contract is protected during a transfer or takeover. Some of your rights may be different than the protections during a normal transfer or takeover.

Administration

The main purpose of administration is to rescue a company. If this isn't possible, an administrator will try to get a better result for the creditors than would be possible if the company was wound up. The creditors are the people or companies who are owed money by the insolvent business.

If neither of these is possible, an administrator will sell the company's property to make at least a partial payment to one or more secured or preferential creditors, such as employees or the bank.

If the main focus of an administrator’s actions is to rescue the business or provide a better result for creditors without winding up the company then your employment contract is protected during a transfer or takeover. Some of your rights may be different than the protections during a normal transfer or takeover.

Voluntary arrangements with creditors

An employer who gets into financial trouble may be able to avoid winding up or bankruptcy by entering into an arrangement with its creditors. Formal voluntary arrangements are where creditors hold a meeting and vote on a proposed arrangement put forward by your employer with the help of a licensed insolvency practitioner.

If your employer is going through a voluntary arrangement your employment contract is protected during a transfer or takeover.

Administrative and other types of receivership

If your employer is in administrative or any other type of receivership then your employment contract is protected during a transfer or takeover, although some of your rights may be different that the protections during a normal transfer or takeover.

Multinational companies

If your employer is going through any foreign proceedings at the same time as the bankruptcy proceedings then this could affect your rights. You should contact the Acas (Advisory Conciliation and Arbitration Service) helpline or seek other advice.

• Acas contact details

• Other useful employment contacts

Useful contacts

• Acas (Advisory, Conciliation and Arbitration Service)

• Citizens Advice Bureau

• Jobcentre Plus

• businesslink.gov.uk Opens new window

• More useful contacts