Insolvency is one of the disastrous consequences for an enterprise when it can no longer pay off its debts. There are various possible reasons leading to insolvency, which arise primarily from poor cash flow. What are employees expected to do when their employer is insolvent? The cases of company insolvency in UK are also associated with certain rights for the employees. Employers can declare insolvency in different situations, and a clear impression of basic employee rights in such scenarios is essential. Let us find out more about the rights of employees in UK when their employer declares insolvency.
Possible Scenarios for Employees in Event of Insolvency
Before learning about the rights of employees in event of limited company insolvency, you should identify the basics of insolvency. An employer may declare insolvency on various grounds, including bankruptcy, administration setbacks or liquidation. In addition, insolvency can also be related to voluntary arrangements or debt relief orders. In the case of insolvency, an employer can offer three specific choices to employees. Insolvent employers can,
- Make the employees redundant.
- Ask the employees to keep working.
- Transfer employees to a new employer in event of selling the business.
Based on the situation or the preferences of employers on how to liquidate a company, employees can ask for specific rights from the government. Employees can demand the following when their employer is insolvent.
- Redundancy payment.
- Holiday pay.
- Outstanding payment such as unpaid wages, commission and overtime.
- Statutory notice pay or money earned by working during the notice period.
Although an instance of company insolvency in UK is not exactly welcome news, employees have different rights according to the actions of the employer. Here are the specific rights of employees in different possible scenarios when a company declares insolvency.
Employers looking for solutions on how to liquidate a company would sometimes opt for dismissal of employees or redundancy. In such cases, the person dealing with insolvency has to guide employees about the way their job is affected and the next steps. You can ask the government for all benefits of employer insolvency such as redundancy payment, holiday pay, outstanding payments and statutory notice pay. Employees can also ask for compensation for unfair dismissal at the employment tribunal.
Employers can also retain employees and make them work after insolvency. In such cases, employees are eligible to claim redundancy pay. However, employees cannot claim any holiday pay, bonuses, wages or commission owed between the date of insolvency and date of dismissal.
Transfer to New Employer
Employees cannot claim any money in case of limited company insolvency upon transfer to new employer before the employer declares insolvency. However, they can claim redundancy pay, outstanding payments and statutory notice pay upon transfer after insolvency.
Employees in the UK can make the most of guidance regarding creditors voluntary liquidation cost estimates and their rights upon insolvency of employers. You should trust financial and legal experts to guide you through all stages of the insolvency process and your rights as an employee. Learn more about employee rights in the UK now.