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Wednesday, 3 October 2023

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Employment

Your rights if your employer is insolvent

If your employer becomes insolvent you have a number of options open to you. Find out what insolvency is, what to do if you are owed money by an insolvent employer and how insolvency affects your employment status.

What is insolvency?

Insolvency is where an employer has no money to pay the people they owe in full and they have to make special arrangements to try to meet these debts.

Types of insolvency

There are different names for different types of insolvency, and for the people who handle them.

If your employer is a company, or a limited liability partnership, insolvency means one of the following:

administration
liquidation
receivership
voluntary arrangement with creditors

If your employer is an individual, insolvency means one of the following:

bankruptcy (sequestration in Scotland)
voluntary arrangement with creditors

It is not an insolvency if your employer stops trading without one of the above happening, or a company is struck off the register of companies (dissolved).

Transfer of an insolvent business

Even if your employer cannot pay you, they might want you to carry on working for them while they try to sell the business. If you continue working and your employer's business is transferred, your employment rights are protected, including any pay that is owed to you.

Business transfers and takeovers (TUPE)

Lay-off

It is possible your employer is not officially insolvent but they still cannot pay you. In this case, they could be forced to lay you off or put you on short time.

Temporary lay-off

Working for an administrator, receiver or liquidator

Sometimes a business may keep running if there is a chance that all or some of the business can be made workable or be sold on to a new owner.

If this happens, you may be asked to continue working. This does not affect your rights to redundancy pay if the firm closes down later.

Insolvency practitioners

Usually someone called an ‘insolvency practitioner’ or ‘official receiver’ is appointed to deal with the insolvency. They will be in charge of the case and could act as one of the following:

administrator
liquidator
receiver
supervisor (of a voluntary arrangement)
trustee (in bankruptcy)

What you can claim

You can claim for all your outstanding pay from the insolvency practitioner. There is no guarantee that the full amount you are owed will be paid as this depends on whether enough funds are raised from the sale of your employer’s assets.

Some debts, including holiday pay and wages, will be 'preferential debt' when your employer’s assets are shared out. This means they must be paid before certain other debts.

As full payment cannot be guaranteed, there are special arrangements for employees to claim the basic minimum of debts owed to them from the National Insurance Fund. These claims are:

redundancy
wages - up to a maximum of eight weeks
holiday pay - up to a maximum of six weeks
compensatory notice pay - one week after one calendar month's service rising to one week per year of service up to a maximum of 12 weeks (new earnings will be taken into account)

There is a limit of £400 a week (£430 a week from 1 February 2024) on the amount you can claim for your weekly pay.

Insolvency payment claims

What to do next

If the business you work for has closed, you need to find out if your employer is insolvent or just in difficulty. Companies House holds trading details on its register of companies, and you can get information on people who are declared bankrupt from the Insolvency Service.

Companies House website Opens new window

Insolvency Service website Opens new window

If the company is still trading but you are not getting paid, you may be able to complain to an Employment Tribunal that there has been an unlawful deduction from your pay.