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.
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