Posted 15th February 2012

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Insolvency Of Employer: Employee Entitlements

1.                   Insolvency

1.1               If an employer cannot pay its debts it may enter a form of insolvency. Insolvency includes:

1.1.1          liquidation (of a company);
1.1.2          bankruptcy (of an individual or partnership);
1.1.3          administration;
1.1.4          receivership;
1.1.5          voluntary arrangements with creditors.

1.2          When an employer becomes insolvent, an employee´s employment is usually ended automatically on the grounds of redundancy. In this case employees may be able to recover money owed to them:

1.2.1          from the assets of the insolvent employer; or
1.2.2          through their statutory rights.

1.3            When an employer goes into administration the employment contracts continue and are not terminated automatically. The administrator may still dismiss some or all of the employees.

1.4            If you are not being paid but the employer is not insolvent you will be able to:

1.4.1          stop working and claim the arrears of wages and compensation for an unfair constructive dismissal from the employer or in accordance with the following sections; or
1.4.2          continue working and hope to be paid eventually by the employer or a buyer of the business or in accordance with the following sections.

2.                   Rights against the Assets of the Insolvent Employer

2.1        In any insolvency the assets of the business are realised and paid to the creditors of the business in a certain order.  Under the Insolvency Act 1986 certain sums due to employees are preferential debts.  Preferential debts rank behind creditors with fixed charges over the assets and the costs of the insolvency itself.

2.2        Once these prior claims have been paid if there are any assets left these are available to pay claims from any of the former employees for:

2.2.1    remuneration (including wages and salary) for up to four months prior to the insolvency, (subject to a maximum of £800) and;

2.2.2    accrued holiday remuneration.

2.3        In any insolvency however there is a strict order of priority in which outstanding creditors claims must be met. Whether or not you will receive what is owed to you depends on how much the assets of the business are worth.

2.4        If an employee is owed more than £800 in respect of remuneration, the excess will be an unsecured claim along with all the company´s other creditors.

3.                   Statutory Rights

3.1        The Redundancy Payments Scheme

3.1.1      If you don´t receive everything you are entitled to under the insolvency under the Employment Rights Act 1996, on application to the Secretary of State, help is available from the Redundancy Payments Scheme to satisfy the immediate loss of income due to termination of employment upon an employer´s insolvency.
3.1.2      The following debts are guaranteed subject to a limit per item of £400 in respect of any one week:

(a)    up to 8 weeks arrears of pay;

(b)   pay for the minimum statutory notice period or damages for failure to give such notice;

(c)    holiday pay for up to six weeks holiday (taken and/or accrued and not yet taken) to which the employee became entitled within the last 12 months;

(d)   a statutory redundancy payment (if you have been employed for at least 2 years); and

(e)   certain unpaid pensions contributions due from the employer.

3.2        The insolvency practitioner dealing with your employer´s insolvency will normally give you the form (RP1) to claim the money you are owed out from the Redundancy Payments Scheme.

3.3        Upon insolvency an employee will also be entitled to be paid the following payments by the H M Revenue & Customs rather than the insolvent employer:

3.3.1     Statutory Maternity Pay;
3.3.2      Statutory Sick Pay;
3.3.3      Statutory Paternity Pay;
3.3.4      Statutory Adoption Pay.

For more information contact

Malcolm Jones

Newtons Solicitors Limited

T: 01423 789 059

E: malcolm@newtons.co.uk

This article is for general information only and should not be relied on as it may not be up to date or address the specific circumstances of any individual, firm or organisation. No responsibility can be accepted Newtons Solicitors Limited for any loss suffered by anyone acting or refraining from action as a result of anything in this article. We recommend you take independent legal advice in relation to your particular circumstances.

Insolvency Of Employer: Employee Entitlements

1.                   Insolvency

1.1               If an employer cannot pay its debts it may enter a form of insolvency. Insolvency includes:

1.1.1          liquidation (of a company);
1.1.2          bankruptcy (of an individual or partnership);
1.1.3          administration;
1.1.4          receivership;
1.1.5          voluntary arrangements with creditors.

1.2          When an employer becomes insolvent, an employee´s employment is usually ended automatically on the grounds of redundancy. In this case employees may be able to recover money owed to them:

1.2.1          from the assets of the insolvent employer; or
1.2.2          through their statutory rights.

1.3            When an employer goes into administration the employment contracts continue and are not terminated automatically. The administrator may still dismiss some or all of the employees.

1.4            If you are not being paid but the employer is not insolvent you will be able to:

1.4.1          stop working and claim the arrears of wages and compensation for an unfair constructive dismissal from the employer or in accordance with the following sections; or
1.4.2          continue working and hope to be paid eventually by the employer or a buyer of the business or in accordance with the following sections.

2.                   Rights against the Assets of the Insolvent Employer

2.1        In any insolvency the assets of the business are realised and paid to the creditors of the business in a certain order.  Under the Insolvency Act 1986 certain sums due to employees are preferential debts.  Preferential debts rank behind creditors with fixed charges over the assets and the costs of the insolvency itself.

2.2        Once these prior claims have been paid if there are any assets left these are available to pay claims from any of the former employees for:

2.2.1    remuneration (including wages and salary) for up to four months prior to the insolvency, (subject to a maximum of £800) and;

2.2.2    accrued holiday remuneration.

2.3        In any insolvency however there is a strict order of priority in which outstanding creditors claims must be met. Whether or not you will receive what is owed to you depends on how much the assets of the business are worth.

2.4        If an employee is owed more than £800 in respect of remuneration, the excess will be an unsecured claim along with all the company´s other creditors.

3.                   Statutory Rights

3.1        The Redundancy Payments Scheme

3.1.1      If you don´t receive everything you are entitled to under the insolvency under the Employment Rights Act 1996, on application to the Secretary of State, help is available from the Redundancy Payments Scheme to satisfy the immediate loss of income due to termination of employment upon an employer´s insolvency.
3.1.2      The following debts are guaranteed subject to a limit per item of £400 in respect of any one week:

(a)    up to 8 weeks arrears of pay;

(b)   pay for the minimum statutory notice period or damages for failure to give such notice;

(c)    holiday pay for up to six weeks holiday (taken and/or accrued and not yet taken) to which the employee became entitled within the last 12 months;

(d)   a statutory redundancy payment (if you have been employed for at least 2 years); and

(e)   certain unpaid pensions contributions due from the employer.

3.2        The insolvency practitioner dealing with your employer´s insolvency will normally give you the form (RP1) to claim the money you are owed out from the Redundancy Payments Scheme.

3.3        Upon insolvency an employee will also be entitled to be paid the following payments by the H M Revenue & Customs rather than the insolvent employer:

3.3.1     Statutory Maternity Pay;
3.3.2      Statutory Sick Pay;
3.3.3      Statutory Paternity Pay;
3.3.4      Statutory Adoption Pay.

For more information contact

Malcolm Jones

Newtons Solicitors Limited

T: 01423 789 059

E: malcolm@newtons.co.uk

This article is for general information only and should not be relied on as it may not be up to date or address the specific circumstances of any individual, firm or organisation. No responsibility can be accepted Newtons Solicitors Limited for any loss suffered by anyone acting or refraining from action as a result of anything in this article. We recommend you take independent legal advice in relation to your particular circumstances.