Company administration is a hotly discussed topic in the industry. Recent reports have suggested the number of corporations facing administration has increased over the years. With the news of Toys R Us and Maplin entering administration, the insolvency procedure has been under the spotlight. Similarly, New Look and, most recently, Carpetright have requested company voluntary arrangements (CVA) to aid with their financial issues. The likes of Moss Bros and B&Q have experienced stark falls in profits, and even Claire’s Accessories has filed for bankruptcy in the US, with worries in place for the UK stores. Due to the reports, Business Rescue Expert – leading UK insolvency practitioners – are sharing their employment rights for company administration.
The 2017 UK insolvency statistics provide data on the number of insolvencies across the four quarters in the year, as well as the individual insolvency procedures. Companies entering administration has decreased over the past year. However, broadly speaking, the number of firms facing insolvency procedures has experienced a slight increase. In total, 17,243 businesses have undertaken the process. So, with this data in mind, what does it mean for employees?
What does the administration mean for my employee rights?
Company administration is a formal insolvency process. The procedure involves the directors, shareholders and floating charge holders choosing to place the business into administration. In doing so, the firm has to work with a licensed insolvency practitioner to ensure a business recovery plan for the future. It’s also important to note that administration is time restricted.
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When it comes to employees, the first 14 days is critical. An administrator is required for the process, but they are not required to cover your employment contracts within the first 14 days, as they are establishing a recovery strategy for the business. However, they will, most likely, ensure payment for your assistance throughout the administration procedure.
As we mentioned above, the first 14 days are critical for employees. The administrator can confirm they’re ‘adopting’ your contracts. After 14 days, you will be ‘adopted’ by the company automatically. Subsequently, the business will have to pay your entitlements that accrued during the administration.
The Transfer of Undertakings (Protection of Employment) legislation, or TUPE, caters for your employee rights if the business is sold on. However, it’s important to note that it protects those who have retained their jobs. Your employee contract terms will be held under TUPE, maintaining your original start date – the new company must comply with the legislation. They cannot opt out of the contract. If, for instance, your employers attempt to persuade you to sign a less favourable and new contract after the sale, you should automatically seek legal advice.
Employees as preferential creditors
Company administration is a very real threat to many industries in this climate. However, if you happen to be made redundant as a result of the procedure, your entitlements amassed before the administration will become a preferential or unsecured claim. In some cases, the claims can result in both.
To put the payments in perspective, if ever a company heads into insolvency, there is always a hierarchy of pay. The hierarchy lists the company creditors and the order of recouping losses. Employees as preferential creditors, with a preferential claim, are high up on the list. You will be paid after the fixed charge holders (those in full control of company assets), but before that of floating charge holders (examples include stock, inventory etc.).
The administrator will always take your entitlements into account, handling the payments via the redundancy office. For those employees labelled as preferential creditors, you are entitled to:
- Up to £800 payment arrears
- Holiday pay that may have accrued before administration
- Pension contributions that are outstanding
Employees as non-preferential creditors
As in many cases of company administration, the amount recouped from the company assets is not enough to fulfil all employee payments. If this occurs, you can look to the National Insurance Fund (NIF). The Redundancy Payments Service administers the NIF, with the aim to cover redundancy and statutory claims. If you happen to be self-employed or an agency worker, unfortunately, you are not entitled to NIF payments.
However, if you submit a successful claim to the National Insurance Fund, you can, generally, expect payments within two to six weeks. The payments are submitted under the guidelines of the Employee Rights Act 1996, but you may not receive all you are entitled. However, alongside the preferential creditor claims above, you can ask for:
- Statutory notice pay
- Redundancy pay
- Up to eight weeks worth of wages
All claims under the NIF are capped, however, and the current rate is £489 per week. In April, each year, the amount, typically, increases slightly. The amounts will be paid as to the hierarchy in company insolvency.
Statutory notice pay
You must be provided with notice of the company facing administration, and what it may mean for your employee right. This action is known as statutory notice. If your employer ignores this legislation and dismisses you without warning, you are entitled to claim for statutory notice pay. Alternatively, the same applies to employees who have worked their notice but have not yet received payment from the company. If the latter is the case, you will have to inform the Insolvency Service and write to them to further discuss the issue and subsequent claims.
Statutory notice pay is deemed on the length of time you have worked at the company. If you fall into the one month to two years category, you are entitled to one week notice. However, if you have been with the firm more than two years, you require two weeks notice and an extra week for each additional year (above two) that you have worked there. This is capped at 12 weeks.
You are expected to claim state benefits you are entitled to during this period, and should be actively looking for another role. However, be aware that the Redundancy Payments Service will deduct the claims for state benefits from your payments, and more deductions if you do find another job.
Advice should be sought at the very early stages of administration, for both employers and employees. If you believe you cannot keep your employees and will struggle with repayments, you must speak with practitioners immediately. Similarly, if you have not received fair payment or any at all, the next logical step is to talk with a legal professional.