What happens to staff when a company goes into administration?

When putting a company into administration the position of the employees can be key. If parts of the business under administration is intended to continue, for example by way of a purchaser buying a company in administration, possibly by way of a pre-pack administration sale, then the employee position is vital. It is hoped that jobs will be saved, and employees can remain in place on the sale of a business under administration. In the event of a company insolvency, employees will naturally be concerned about their position in the company administration, and in order to avoid them leaving the company under administration early, they may need some reassurance.

If the company in administration sells some or all of the business

If the business under administration continues in some format, then there is legislation that applies to transferring employees which allows the employees transferring to the company that is buying a company in administration to continue working with their rights protected. With a transfer in a company administration, the new employer takes over nearly all rights and obligations under the original employment contract of the business under administration, including accrued holiday entitlement, continuous employment and any claims against the insolvent employer, i.e. the firm in administration.

Any employee made redundant or dismissed however may have the right to a redundancy payment. Both the company under administration, and the new employer buying a company in administration have a responsibility to inform and consult under employment legislation in a company insolvency situation.

If employees are dismissed

The general rule is that a claim by employees of a firm in administration for arrears of wages and benefits or damages rank as an unsecured claim against the company under administration.

However, employees dismissed on a company insolvency have some priority claims against the business under administration, for example claims for the period up to four months before the company administration in respect of wages, including maternity and sick pay and suspension pay and holiday up to a limit of £800 ranks in priority to other creditors. Anything else will rank equally alongside other creditors. Employees may also recover certain debts from the National Insurance Fund. This is subject to set limits which we can advise a company under administration or an employee of a business under administration seeking advice.

Adoption of an employment contract

If on a company insolvency an administration order is made, then the firm in administration will appoint an administrator. That administrator has 14 days to elect to adopt or reject the contracts of employment. If a sale, especially a prepack administration sale, is planned, then a company under administration will usually try to retain as many employees as possible to be transferred to the employer buying a company in administration. If a contract of an employee is adopted under the company administration procedure, then that contract is given a super priority for all ongoing wages which are to be paid in priority to the administrator’s own remuneration and expenses.

Contact the expert insolvency lawyers today

The position of employees on a company administration is a key concern.  If you are considering going into administration or you are an employee who is concerned that the company you work for is seeking an administration order, then it is vital that you take expert legal advice on your position as early as possible. Our team of experts at Francis Wilks & Jones are here to advise you.