If your employer goes into Administration it doesn’t mean that the company automatically goes out of business. The Administration process provides a breathing space for actions to be taken to keep the company going if it is thought to be viable and could be made profitable again. Article by Keith Tully a company recovery expert from Real Business Rescue.

If it has been run profitably in the past, there is a chance that your employer is simply experiencing temporary cash flow problems. If this is the case it might be possible to turn the company around through the selling of assets or general restructuring.

Alternatively, the business could be sold as a going concern. In the worst case scenario, it may indeed have to be closed down.

Termination of employment during the Administration period

The first 14 days of the Administration period are crucial for employees. If you are made redundant during this time you become an ‘ordinary creditor’ whereby you will be in the last category to receive monies owed, although your entitlement to outstanding wages and redundancy payments remains.

On the other hand, if you are retained beyond this two week period you become a ‘preferential creditor.’ This puts you in a better position should you face redundancy later on. It means you have priority over ‘ordinary creditors’ and stand a better chance of recouping monies owed to you.

As a preferential creditor, you are entitled to claim:

–  Any outstanding salary and commission up to a maximum of £800 – this covers a period of four months prior to the insolvency

–  Up to six weeks of accrued holiday pay

–  Some occupational pension payments

Any payments owed that originate before the four month period, and monies due from other sources, are paid as if you are an ordinary creditor rather than under preferential creditor status.

If you have made a claim via the Insolvency Practitioner and are aware of the amount you will be paid, any shortcomings can be claimed by contacting the Redundancy Payments Service (RPS).

This claim is made from the National Insurance Fund and is subject to a limit, which at the time of writing is £464 per week.

Here’s what you can claim for:

–  Up to eight weeks’ wages

–  Up to six weeks’ holiday pay

–  Payment for your statutory notice period if you were given no notice of dismissal or you worked your notice period but have not been paid

–  Unpaid pension contributions

If you are part of large scale redundancies, with more than 20 members of staff being made redundant from a single company, you could be eligible for a ‘protective award’ if the minimum consultation periods have not been adhered to by your employer or the Administrator. You would need to claim this money via an employment tribunal, however.

To be eligible for redundancy pay, you need to have worked for your employer for a continuous period of two years, with the amount you receive being dependent on your age and how long you worked for them.

When it comes to statutory sick pay or statutory maternity/paternity/adoption pay, these claims do not go through the Redundancy Payments Service, but via the Department of Work and Pensions, and HM Revenue and Customs respectively.

Employed during the Administration period

Once the initial two week period is over, your employment rights are effectively adopted by the Administrator, who may or may not ask you to take a pay cut in order to help the company survive.

Alternatively, they could request that you defer a proportion of your pay. If the company cannot be saved, this becomes part of the debt owed to you as a preferential creditor.

A process called Pre-Pack Administration may be used to sell on the assets and underlying business. If this happens, your employee rights will be protected under TUPE legislation – Transfer of Undertakings (Protection of Employment Regulations), as employees are regarded as an asset of the business. In this instance, the purchasing company becomes liable for outstanding payments.

What happens at the end of Administration?

If the business is purchased by a new company, TUPE legislation applies and your employment rights are protected. Should the old company be liquidated and closed down, you may only receive a proportion of your wages and other payments, so a further claim via the National Insurance Fund may be required.