When a business has become legally insolvent, a trustee, receiver, liquidator or supervisor of an Individual Voluntary Arrangement (IVA) may be appointed and they will decide whether to keep the employees on or dismiss them.
If they are appointed by the Court, this will automatically bring the contracts of employment to an end.
If the company is wound up voluntarily, that is, not by a court order, the trustee, receiver liquidator or supervisor of an IVA who is appointed will usually be considered to be acting as an agent of the company.
If they wish to keep on an employee the existing contract of employment will usually continue to be in force. However they could end the existing contract and offer the employee a new contract.
Trustees, receivers, liquidators or supervisors of an IVA are liable only for rights an employee has accrued since the date they were appointed.
It is common, when they are appointed, for them to write to all employees disclaiming liability for any rights an employee had accrued under the employment with the previous employer, such as pay in lieu of notice, holiday pay and pension contributions. These claims would continue to be against the former employer.
If an employee is owed money by an insolvent employer and has had their contract of employment terminated, either because they have been dismissed or because they have resigned, they may be able to claim a payment from the Department for Employment and Learning (Redundancy Payments Service).
An employee can claim the following debts but should normally claim them through the trustee, receiver, liquidator or supervisor of an IVA:
- arrears of pay — includes commission, overtime and guarantee payments. Expenses are not included in pay. The employee can only claim net pay, after deductions for tax and national insurance, and can only claim up to a maximum of eight weeks' pay. The employee may not receive all the pay they are owed as there is a maximum weekly limit that can be paid irrespective of how much the employee earns.
- statutory payments for time off work or suspension on medical or maternity grounds.
- pay in lieu of notice — most employees have a statutory right to a minimum period of notice. However, there is a maximum weekly amount of pay that can be claimed.
- holiday pay — a client can claim up to six weeks' holiday pay. This may be for holidays taken but as yet unpaid, or for accrued holiday pay. Accrued holiday pay is calculated as the holiday earned, but not taken, in the twelve months immediately before the business became insolvent.
- basic award for unfair dismissal.
- a protective award made by an industrial tribunal, if the employer has failed to inform or consult the employee's representative about a collective redundancy.
- reasonable reimbursement of apprentices' or trainee solicitors' fees or premiums (these are not subject to the maximum weekly limit).
- in certain circumstances a statutory redundancy payment.
There is no age limit, minimum length of time or number of hours an employee must have worked for the employer before they can claim from the Redundancy Payments Service.
If the client is not eligible to claim a payment from the Redundancy Payments Service, or if they are owed money which the Redundancy Payments Service will not pay, they will have to make a claim to the receiver/liquidator to get the money back.
However, there is a strict priority order in which such claims must be paid.
Further information is available from your local CAB or from the Department for Employment and Learning by telephoning 028 9025 7580 or from their website at www.delni.gov.uk/er.
Siobhan Harding is an Information and Policy Officer with Citizens Advice