Hello again and all best wishes for 2009. I have to say that I don’t feel particularly enthusiastic about life, the universe and everything at the moment but that may be because I’ve been laid low over Christmas with a most virulent gastric bug that put paid to just about all my plans. At least I can say I had more time to spend in my bathroom but you really don’t want to know anymore about that.
Despite the continuing economic gloom life here has been fairly quiet. I saw my first compromise agreement of the year today – not a bad package and a bonus was included (which is not something I’ve been seeing that often recently).
The big employment issue over Christmas has been the collapse and, in some cases closure of major High Street names – such as Woolworths, MFI, Adams, Zavvi, The Officers Club, Whittards etc. In the latter case private equity came to the rescue and my morning cuppa has been saved. Adams, the kidswear chain has gone into administration, and there will inevitably be store closures. Hopefully Woolworths can be saved, although I’ve got to be honest and say that I can’t remember the last time I went into Woolies and actually bought anything.
From an employment point of view the perplexing issue in all these cases is where does it leave the employees involved? Here is Jobsworth’s “noddy’s” guide to company insolvency;
The two most common forms of insolvency procedure are;
Administration - this is the option that gets used most often and can offer a glimmer of hope because the legal effect is to give the company breathing space by preventing creditors from suing. The administrators then try to reorganise the company and/or sell off assets. When the Administrator is appointed individual contracts of employment do not automatically come to an end. The Administrator has 14 days in which to decide which employee contracts to adopt and which not. Where he does adopt an employment contract the employee remains employed by the company and not the Adminstrator because he is acting as the company’s agent.
The main issue for employees in this situation is how will they get paid. Employee salaries and wages rank in priority even above the Administrator’s own fees. If there isn’t sufficient funds in the company then application can be made to the Redundancy Payments Office (part of the National Insurance Fund) for unpaid wages. The RPO shouldn’t be seen as some sort of white knight riding to the rescue though because the payments it makes (to employees only and not “workers”) are limited thus;
- notice pay: statutory not contractual. The maximum notice payable under statute is 12 weeks and a week’s pay will be capped at £330. So if you are on six month’s contractual notice and have only actually been with the company for, say, four years, you will only be entitled to receive £1,320 in notice monies which is hard if you are on more than about £17,000 p.a
- up to eight weeks unpaid wages prior to the company becoming insolvent, limited to £330 p.w as above
- up to six weeks holiday pay – again limited to £330 pw.
- Statutory Redundancy Pay (SRP) - for employees with two years’ service they will be entitled to receive £330 per complete year of service (rising to £495 p.a if over 41 years of age)
- Basic Award for unfair dismissal. This is calculated in the same way as an award by way of SRP
- unpaid contributions into the pension scheme.
Employees can be left in a difficult position though when there is a dispute, such as a breach of contract because the Adminstration Order imposes a moratorium on claims against the company. The usual recourse will be to seek the Administrator’s permission to proceed or to apply to the court to lift the stay on proceedings.
Liquidation - this is used where the company cannot be rescued and is to be wound up. Either the company’s creditors will “petition” the court for a liquidation order or the company will place itself in voluntary liquidation. Whereas with an Adminstration Order there may be some glimmer of hope that the company can be rescued, there is no such room for optimism with liquidation. Employees caught up in a liquidation will have to apply to the RPO, as above. The prospect of recovering any wages etc above the sums paid by the RPO are probably going to be slim: employees rank as preferential creditors but there is a cap of a whopping £800 (!!!) on unpaid wages, accrued holiday pay etc. Over and above this princely sum employees rank as unsecured creditors and have as much chance of recovering monies owed to them as any of the trade creditors.
It is all a bit of a minefield and the above is only the briefest of summaries. Do seek professional legal advice if you want to know more or are unlucky enough to be caught up in either situation.
I’m looking forward to the weekend and the resumption of normal business on Monday. Do call me on 0207 464 8433 or email me at email@example.com if I can help.