Administration and Employees

The affect of Administration on employees will depend on what happens to the company. If all or part of the business is saved jobs will be preserved. In the event of closure jobs will be lost. If any part of the company is sold then employees are transfered to the new owner.

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Are Employees at risk if a company is in Administration?

If a company goes into Administration there is normally a consultation period of 6-8 weeks. This allows the Administrator to propose a plan for the future of the company. During this time employees wages must still be paid.

The purpose of Administration is to try to find a better outcome for the creditors of the company than simply closing the business. Given this it is possible that some or all of the business will be saved. Where this is the case jobs will be preserved. However it might be necessary to reduce working hours and even wages.

Even if the company is saved a certain amount of restructuring may be recommended. This could result in job losses. In these circumstances redundancy will be paid according to employment terms and conditions.

What if Administration results in the sale of the Company

One outcome of the Administration process may be that all or part the business is sold to a third party. If this happens all affected employees must be transferred under the same terms and conditions of employment. This process is governed by TUPE. The Transfer of Undertakings (Protection of Employment) rules.

Despite the protection of TUPE the new owner is not required to continue employing people they do not need. If they are not required employees can be made redundant. However the process can only be undertaken with full regard of employment law. It must also take into account the length of time that employees worked for the old business before they were transferred.

Where the correct employment rules regarding redundancy are not followed it would be possible for transferred employees to sue the new employer for unfair dismissal.

What if Administration results in the closure of the Company

It is possible that the Administrator will decide that all or part of the company should be closed. If this is the case a Liquidator will be appointed and employees will be made redundant. Any employees so affected are due redundancy pay as per the terms of their employment contracts. However the company may not be in a position to honour all the payments.

If the business is unable to pay the full terms of the employees redundancy they are then ranked as preferential creditors. This means that once all of the assets of the business have been realised they will be paid after the Liquidator’s fees.

Where an insolvent company is liquidated redundancy payments may be subject to a maximum of £800 per employee. Any additional amount owed will be treated as an unsecured debt.

It is unlikely that employees will receive all the redundancy pay they would otherwise be due. Certain additional amounts may are recoverable from the National Insurance Fund (NIF) but these will be limited.

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