What are my employees’ rights during insolvency?

What are my employees’ rights during insolvency?

November 21, 2019 by Sandra

If your company is facing business insolvency or bankruptcy, it can be a very stressful time. It’s important to make sure you have all the facts and that you know the rights of your employees. Whether your staff have been working for you for a considerable time or have just joined the business, it’s understandable that you may be concerned for their collective and individual futures – whether with the business or outside the company in new roles.

Firstly, it may be reassuring to know that there are special arrangements in place for employees who are dismissed from their jobs as a result of their employer’s insolvency. Your company has a number of options if it is insolvent and cannot pay its debts. These include:

  •     Making employees redundant
  •     Asking employees to keep working as normal while the company restructures
  •     Negotiate reduced working hours, whilst attempting to turn around the fortunes of the company
  •     Transferring employees to a new employer if the business is sold

In this blog we explain the facts about business insolvency and what your employees’ rights are if the company is insolvent.


What is business insolvency?

A business is insolvent when it cannot pay its debts. There are a number of different types of insolvency, including administration, liquidation and bankruptcy. Not all types of insolvency mean that the business has to close.

For example, with a creditors voluntary agreement the company may be rescued and restructured to ensure its survival. You will be required to appoint a licensed insolvency practitioner to help you with the formal and legal side of insolvency administration.

Can my employees find out if my business is insolvent?

It’s possible to find out if a business is insolvent on the gov.uk website. This information is free to access and is readily available online. It can provide details about your business, its directors, history and insolvency information, and your employees will be able to search for this data using Companies House by entering the name of their employer, or the company number.

Because of this information being so readily available, it’s important to inform your employees as soon as the information comes into the public domain. Being open and honest is the best way to deal with your employees’ worries.

What are my employees’ rights?

If your employees lose their jobs because of company insolvency, they can make a claim to the government for a number of payments. This is dependent on each employees’ situation but usually includes:

  •     Redundancy payments
  •     Unpaid holiday pay
  •     Outstanding payments such as wages, overtime and commission
  •     And pay in lieu of notice (known as statutory notice pay)

Employee rights in insolvency

Your employees may also be eligible for Jobseekers’ Allowance if they lose their jobs. The longer an employee has been employed by the business, the more they are entitled to. Redundancy payments are based on age and the number of complete years that they were employed at the company. It’s a complex calculation, and one that a licensed insolvency practitioner will work out to ensure that each employee receives exactly what they are owed.

They will be instructed to help deal with unpaid wages and any staffing needs, as well as the legal side of business insolvency and paying creditors. Payment in lieu of notice is based on each individual contract – you should give your employees advanced warning if the business is closing, as if the company closes without warning employees will be entitled to notice pay. 

Business insolvency doesn’t have to mean the end of the company, however; the business may be able to be restructured. If you are concerned about business insolvency or you are considering liquidation, our friendly team can help - download our latest guide to find out more.

How to take care of your employees when facing insolvency

Filed Under: Business Insolvency, Trading

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