Facing the insolvency of your employer can be an uncertain and distressing time. If the company you work for becomes insolvent, a range of legal protections are in place to help employees understand and enforce their rights. At Stephensons, our experienced employment law solicitors are committed to helping individuals navigate the complex legal landscape that follows a company entering insolvency. This page outlines your rights during this process and explains the actions you may be entitled to take.
Understanding company insolvency
Company insolvency occurs when a business is unable to pay its debts as they fall due, or its liabilities exceed its assets. Insolvency may lead to various formal procedures, such as administration, liquidation or company voluntary arrangement (CVA). Each of these processes is overseen by appointed insolvency practitioners who have a duty to act in the interests of creditors, while also having certain obligations towards employees.
Your employment status during insolvency
Whether your employment continues will largely depend on the type of insolvency process the company enters into. In the case of administration, the company may still operate for a time in the hope of achieving a rescue, meaning your employment could continue in the short term. However, in the case of liquidation, it is more likely that your employment will be terminated promptly.
It is important to note that your legal rights remain intact regardless of the insolvency status. Your continuity of service, statutory entitlements and employment protections do not automatically disappear merely because your employer is insolvent.
Redundancy and notice pay
If your employment is terminated as a result of the insolvency process, you may be entitled to receive redundancy pay. You may also be entitled to notice pay if your employer fails to give you the correct notice period or fails to pay you during your notice period.
In many cases, insolvent companies lack the funds to cover these payments directly. However, the Redundancy Payments Service (RPS), part of the Insolvency Service, steps in to ensure employees are not left out of pocket. Claims for redundancy, unpaid wages, accrued holiday pay, and notice pay can be submitted directly to the RPS, subject to statutory limits.
Unpaid wages and holiday pay
If your employer becomes insolvent and owes you wages or holiday pay, you may be able to claim these through the National Insurance Fund. The maximum statutory limits apply, and the payments are based on a weekly cap, which is updated yearly by the government. In addition to basic pay, you may also be able to claim for commission, overtime and bonuses accrued during the final weeks of employment.
It's crucial to keep accurate records of any outstanding payments, including payslips, employment contracts and correspondence from your employer or insolvency practitioner, to support your claim.
Claiming through the redundancy payments service
The process for claiming through the RPS involves completing an online form after your employment has ended due to insolvency. You will typically need a case reference number from the appointed insolvency practitioner before you can proceed. It's advisable to make your claim as soon as possible, as there are time limits within which claims must be submitted.
The RPS covers the following types of payments:
- Statutory redundancy pay
- Up to eight weeks of unpaid wages
- Up to six weeks of holiday pay
- Statutory notice pay
If the amount owed to you exceeds the statutory maximum, you may become an unsecured creditor for the balance. This means you may receive some or all of the remaining amount depending on the funds available following the insolvency process, although payments to unsecured creditors are not guaranteed.
Transfer of undertakings during insolvency (TUPE)
In certain cases, an insolvent company may be sold to a new owner or merged with another business. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) are designed to safeguard employees' rights during such transfers. TUPE may still apply in some forms of insolvency, particularly in administrations where the business continues as a going concern.
If TUPE applies, your employment should transfer to the new employer on the same terms and conditions, and there should be no break in your continuity of service. It's important to seek legal advice promptly if you believe your employment is subject to a TUPE transfer during insolvency proceedings.
What to do if you suspect insolvency is imminent
In some cases, warning signs such as delayed wages, unanswered emails or sudden organisational changes may indicate financial distress within your company. If you suspect your employer is facing insolvency, it’s advisable to gather documentation evidencing your employment terms, pay entitlements and any correspondence referencing the company’s financial position.
You should also consider seeking immediate legal advice to understand your potential rights and prepare for any outcomes. Early legal intervention can help clarify your options and improve your chances of recovering what you are owed should insolvency be formally declared.
How Stephensons can assist
At Stephensons, our employment law team possesses extensive experience in helping employees through the challenges associated with company insolvency. We provide clear, pragmatic advice tailored to your circumstances, including support with redundancy claims, recovery of unpaid wages and guidance on TUPE implications. If you are facing uncertainty due to a potential or actual insolvency event involving your employer, we are here to support you with reliable legal expertise every step of the way.
Contact us for further guidance
If you are affected by company insolvency and need legal advice concerning your rights as an employee, contact Stephensons today. Call us on 0161 696 6170 or fill in our enquiry form.
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