2018 has been an ‘annus horribilis’ with Toys ‘R’Us, House of Fraser, Maplin, Poundworld and many others all going into administration and/or needing rescuing. Interserve, one of the UK’s largest providers of public services has also just revealed it is seeking a rescue deal, so 38 companies this year is unlikely to be the final casualty count.
Take a look at these numbers, they do not make for comfortable reading.
|Companies Failing||Stores Affected</strong||Employees Affected</strong|
|2017 (12 months)||44||1,383||12,225|
Source: Centre for Retail Research
There is no shortage of sympathy in the media for the staff affected, and rightly so because most employees are very vulnerable in insolvency situations.
Pre-emptive action is probably your best bet.
If you think your organisation is in danger, update your CV and start looking for something else. Management will be the most in the know about the company’s situation and high level exits are often a sure sign that there is trouble ahead. There may be an opportunity to move with your manager or secure their help in finding something else.
Generally speaking, once administrators are appointed they will look at making redundancies or look to sell the business quite quickly because if they employ you for more than two weeks they effectively adopt your employment rights and have to pay you ahead of being paid themselves.
Administrators may look to sell the business or parts of it, meaning that if you are assigned to that business/or part of it your employment should automatically transfer to the new owner under TUPE. So if you find yourself left behind you may have claims against the new owner (a preferred target over an insolvent business).
Will you get what you are owed if your employer goes insolvent?
The answer is not in full.
Employees are treated as preferential creditors for arrears of pay (subject to government limits – currently up to £800) and for holiday pay and for some pension contributions. This means that they get paid ahead of unsecured creditors, but after secured creditors (e.g. the bank if there is a mortgage) and the insolvency practitioner themselves. However any additional monies owed to you will be treated as unsecured debts, so are unlikely to get very much of this back.
Is there anything else that employees can do?
Employees can claim additional payments from the government (the National Insurance Fund). You can apply for a redundancy payment, holiday pay, outstanding payments like unpaid wages, overtime and commission and statutory notice pay. However you can only claim for certain periods of time and payments are capped (e.g. you can only claim for up to 8 week’s wages, and payments for wages and other money you’re owed are capped at £508 a week). Not good news if you are a high earner. There are also strict time limits for making the necessary applications to NIF.
You can also consider applying to the court for compensation from the Secretary of State and your former employer if you think you were dismissed unfairly (for a basic award) or not consulted properly (for a protective award if collective consultation obligations were not adhered to).