Employment Law Explained

What happens if my employer goes bust? Part 2

It all depends on what is meant by “going bust” (sorry, typical lawyer’s answer).  There are several ways a company can go bust, i.e become insolvent, and much will depend on whether the company can be rescued or if it is beyond help.  Insolvency practitioners talk about “terminal” and “non-terminal” insolvencies.  Insolvency law is a complex area and what follows is only a “noddy’s guide”.

Terminal insolvencies include where a liquidator or receiver is appointed to wind up the company.  That is a liquidator’s sole job and if he is appointed by the Court or shareholders his appointment will automatically terminate all employment contracts.  Employees will then have to apply to the Redundancy Payments Office for redundancy pay,  unpaid wages etc and take their places in the queue of creditors.   I’ve written in this blog before about the RPO and the less than generous sums paid – see the entry on 18th September last year.

A Receiver appointed by debenture holders is an agent of the company and his appointment doesn’t automatically bring all employees’ employment to an end.  This is the same position as with Adminstrators (appointed by the Court) when a company goes into Administration (as with Lehman Bros for instance).  This is the most common form of insolvency procedure and is designed to try and rescue the company if at all possible – it’s a “non-terminal” insolvency procedure in other words.  The Administrator has 14 days to “adopt” employment contracts.  Those employees who are dismissed may therefore have claims for redundancy pay or unfair dismissal.    

A Receiver is slightly different in that he is appointed either by the Court or debenture holders and his job is to sell assets sufficient to cover the monies lent by the debenture holders (who will have had a fixed or a floating charge over company assets).  If appointed by the Court then employment contracts will be terminated, but not if he is appointed by debenture holders.

So, in other words, unless the insolvency procedure automatically terminates all employment contracts, the position is going to be uncertain.  An employee is going to have to wait to see what steps the Administrator or Adminstrative Receiver is going to take.  They may be taken on or they might be dismissed.  If kept on and the company is rescued, perhaps by another company buying up the remnants of the business, issues may then arise over the transfer  and then there will then issues over whether the TUPE rules apply. 

This is another can of worms and needs to be considered carefully.  A recent case, called Oakland v Wellswood (Yorkshire) Ltd held that the TUPE 2006 regulations do NOT apply where an Administrator of  company which is in administration disposes of the business as a going concern, which is the same position as where a business is disposed of by a liquidator.   Whether TUPE applies or not can be crucial because if it does then an employee’s continuous employment continues thus preserving the right (if accrued) to bring a claim for unfair dismissal.  As ever take legal advice on your situation if in doubt.

 

I can be contacted on 0207 464 8433 or leave a comment on these pages.

15 Responses to What happens if my employer goes bust? Part 2

  1. steven parsonage says:

    I was made redundant after 20 years service with P F Couriers ltd. With no warning, only 2 employees were made redundant the rest stayed with the new company P F Gatwick. P F Couriers went into administration, can i claim unfair dismissal?

  2. michaelscutt says:

    Because of your length of service you are eligible to submit a claim for unfair dismissal. The isuses you need to consider are – was there a TUPE transfer from the old company to the new? If yes then if you were dismissed as a result of the transfer then that may give rise to a claim for automatically unfair dismissal. An employer can argue that the redundancies were for Economic, Technical or Organisational reasons as a defence, but even if they make that out, you still may be able to argue that you shouldn’t have been selected.

    There are several complex issues arising from your situation and you need to take legal advice. I’d be happy to help you – call me on 0207 464 8433.

    Regards

    Michael Scutt

  3. red-to-black.co.uk debt advice and debt management says:

    We all need to share our experiences so everyone can benefit for the common good. Good write up and some sound advice given. Thanks for sharing

  4. Jason says:

    Hello

    I resigned from my employer 2 months before the company had administrators appointed. The company directors have since formed a new company of which I have never been involved in and they are trading in the same industry (with the bulk of the same staff) as their former company.

    My question is regarding my employment contract that was with the former company (currently in administration and not trading). Am I still under contractual obligations (eg. approaching clients etc.) since this company no longer trades?

    Appreciate any advice.

  5. Michael Scutt says:

    Jason

    Thanks for this and sorry for the delay in replying. I think much will depend on the nature of the insolvency process. Administration doesn’t have the effect of automatically terminating employment contracts so although you resigned before the administrators were appointed the rescued company may still be able to enforce your contractual obligations against you.

    Whether the restrictive covenants are enforceable is another matter entirely. I would need to see your contract of employment and know more about the administration process before I could advise you properly.

  6. Tony says:

    Hi. 18 months ago I and my colleagues were made redundant. We were working for a company based in Leeds and were the Chorley (Lancashire) based satellite software development office. We arrived at work on the Monday to be told we had been made redundant and to clear our desks.
    Five of us lodged claims for unfair dismissal as there was no consultation and we believed it was automatically unfair. We also named a second respondent under TUPE regulations as we believed our jobs were transferred to another team working for a different company owned by the man who was also the major shareholder in our company; and based in the Leeds office of our previous employer.
    Our previous employers defence was that the company was experiencing financial difficulties and the action had to be taken so we would have been made redundant in any event.
    The second respondents defence was that the work they were doing was different to the work we did and we had incompatible skill sets.
    We were still confident in our case and continued. Evidence was bundled and submitted, tribunal dates were set and then in June last year, the second respondent went into and is still in administration.
    As a result of this our case has been put on hold until the administration is completed and we have been told that it is likely our case for unfair dismissal is no more because if there was a transfer, the liability for unfair dismissal went along with it and there is no point chasing the second respondent as they will have no money. The only case we have against our previous employer is one for a failure to consult before the transfer.

    Is this correct?
    I would have thought we would still be able to chase our previous employer for the dismissal. Even if that’s not the case, I don’t see why our case has been suspended. We have not actually had our day in court yet to even establish that the transfer took place.

    Thanks in advance
    Tony

  7. Michael Scutt says:

    Tony

    Thanks for this. This is a complex situation and you really need to get some specific legal advice on it. I can’t give legal advice through this blog – but do contact me via Dale Langley & Co and we could help. Given that you’re in Leeds/Chorley you might want to speak to someone closer to home.

    Good luck

    Michael

  8. Corné says:

    Afternoon Michael,

    I was unfairly dismissed 10 months before the respondent went into administration. At the time the respondent went into administration the ET process was well advanced, and I believe I had a strong schedule of loss defending £40 000 plus, and a tribunal date was set.

    The administrators then wrote to me “legal proceedings cannot be instituted….without consent of the administrator or permission of the court”

    I have since written to the administrator, copying the ET, but received no answer from the administrator. However, the ET then issued new orders and a new date, which I took as permission to continue.

    When I again issued my schedule of loss to the administrator, in line with the new order, the administrator again referred me to his original letter regarding legal proceedings.

    It was only on an inquiry to the ET that it was clarified that permission is needed from the companies court and not the ET.

    What is the process to obtain leave to continue from the Companies Court, and is it worth the effort?

    Regards,

    Corné

  9. Michael Scutt says:

    Dear Corné

    Thank you for this comment and I must apologise for taking a while to get back to you. Applications to the Companies Court for permission to sue the company in administration are fairly rare. The companies court is a division of the High Court so one immediate risk is that if you were unsuccessful or you withdrew the application you may be liable to pay the administrators costs.

    You would need to pay a court fee as well.

    I’d be happy to advise you via my firm if you wish but would need more information on the situation.

    Best regards

  10. Mo says:

    Dear Michael

    I have currently had a two day hearing at the ET for unfair dismissal and Discrimination against my former employer. Unfortunately at the end of the 2nd day only the evidence were completed and there was no time left for written submissions etc. The ET will be providing both parties to another day of hearing soon.

    My claim is for £50,000 and looks very strong as they followed no procedure. Recently my representatives have been informed by the respondent that they are looking to liquidate the company as they will be in no position to pay the award. They have since offered us a settlement of £2,000.

    Im not sure what to do as I think even if I win the case, I could be in a situation where the goes into liquidation. I know the company does not have any assets apart from equipments within the building. Would be able to get a court order and get the bailiffs in? Or is there another way I would be able to recover my award?

  11. Michael Scutt says:

    Hi Mo

    I’m sorry for the delay in replying. I think you need to get specialist advice from an insolvency practitioner or specialist lawyer. Once a liquidator has been appointed it is usually not possible to take court action and you have to deal wioth the liquidator/administrator. It’s not an area I know lots about. The Law Society will be able to give you a list of specialist solicitors in this area – http://www.lawsociety.org.uk

    Kind regardS

  12. Beccy Waddington says:

    I was laid off from a company who claimed they were insolvent. They are still listed as a company but not trading. I have a tribunal date set but am told by then the company will be placed into liquidation. The owner is delaying everything whilst she sets up the same company in a slightly different name. So we have to wait for this to happen before claiming redundancy pay from the taxpayer. That is assuming it won’t ever reach tribunal stage. There must be something we can do to stop her loopholing.

  13. Michael Scutt says:

    Beccy

    I’m sorry to read this. You need legal advice and I don’t give legal advice via this blog. Please contact me at Dale Langley & Co if you want me to advise you.

  14. Mrs Cioffi says:

    My husband was told on Friday that the company he works for has gone into liquidation and that they cannot pay his wages for the last month. He was told to turn up again for work on MOnday, which he did along with the 3 other employees. The company is starting up again under a new name and directorship. My husband has been informed that he will be paid for this week’s work but not the last month’s wages (3 September – 30th September) and said they will try and pay him in 2 weeks time but werent too sure. We have been unable to apy our mortgage this month and have put in delaying tactics to the mortgage company. Where do we stand with this? How can my husband be pais for the month’s work he has completed?

  15. Hi

    I’m sorry to read this. I don’t give advice on particular situations through this blog. However, you might find this link helpful – http://www.direct.gov.uk/en/Employment/Employees/Pay/DG_10026695

    Good luck

Leave a reply


*