What are my rights if my employer goes into administration?

Finding out your employer is going into administration can be very stressful and will likely raise many questions about the future. Our Employment Law team here discusses how employees’ contracts of employment and rights are affected by administration, explaining what you are entitled to should you find yourself in this situation.  

What is administration?

Administration is a form of insolvency whereby the company’s assets are placed under the control of an administrator. The administrator’s job is to reorganise and realise (gather in) the assets of the company so that it will recover financially or, where recovery is not possible, to try and find a new owner.

Going into administration does not necessarily mean that the company will go out of business, nor does it automatically bring your contract of employment to an end. When your employer enters administration you retain all the usual employment rights including the right to statutory sick pay, holiday entitlement, and not to be paid less than minimum wage.

Will I be made redundant if my employer goes into administration?

Many businesses that enter administration are forced to make redundancies, and whether you are made redundant will determine your rank against other creditors’ when it comes to presenting claims against the company for payment. If you are made redundant within the first 14 days of the administration process, you will become an “ordinary creditor.” This means that your claims are unsecured and you will be in the last category to receive monies owed.

If you are kept on beyond the first 14 days, your contract of employment is treated as being “adopted” by the administrator and you become a “preferential creditor” with a better chance of recovering monies owed. Employees who are preferential creditors will be paid “qualifying liabilities” in priority over unsecured creditors’ claims and the administrator’s fees. Qualifying liabilities include:

• wages and salary;
• holiday pay;
• sick pay; and
• contributions to occupational pension schemes.

Statutory redundancy payments, payments for unfair dismissal, pay in lieu of notice (PILON), and unpaid wages that are accrued before the administration process are not considered qualifying liabilities and therefore will not be paid in priority.

What is preferential debt?

All employee creditors hold a minimum amount of remuneration as preferential debt, meaning the debt ranks third in priority to be paid out. The preferential debt employees are entitled to include:

• remuneration owed in the four months before administration began, up to a cap of £800;
• holiday pay accrued prior to administration; and
• certain pension contributions towards occupational pension schemes.  

How can the National Insurance Fund help when my employer goes into administration?

The National Insurance Fund guarantees a basic payment for some of the debts held by employees when their employer is insolvent and their employment has been terminated. If the necessary conditions are met you may be entitled to claim:

• up to eight weeks capped arrears of pay;
• up to six weeks capped holiday pay, accrued in the 12 weeks before insolvency;
• statutory notice pay;
• statutory redundancy pay; and
• unpaid pension contributions.

Will I be transferred to a new employer?

While the administrator should try to save the company, in many cases the company will have to be sold to a third party. If your company is sold to another employer, the Transfer of Undertaking (Protection of Employment) Regulations (TUPE) may apply. This will be the case if the business is sold as a going concern but not if the shares in the business are sold rather than the business itself.  If TUPE applies, your employment contract will be transferred over to the new owner, who will also be responsible for any outstanding payments owed to you, save for the payments that are to be made by the National Insurance Fund. 

Administration can be an extremely stressful and uncertain time for employees. If your employer is going into administration, you are being made redundant or transferred, or if you have questions about the process, you can contact us today on 023 8071 7717 or email employment@warnergoodman.co.uk.  If you are being made redundant, you may find the following articles useful:

• What are my rights when offered a settlement agreement due to redundancy?
• Can I refuse suitable alternative employment when being made redundant?

To receive regular Employment Law updates from the team regarding recent tribunal cases and legislation updates, you can subscribe to our weekly Employment Law Newsletter by completing our subscription form or emailing us at events@warnergoodman.co.uk. 

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.