Business failures and company restructures running at record levels. As a result, many employees are finding themselves facing redundancy or their employers being taken over.
Depending on the type of insolvency procedure employees’ rights can vary.
The type of insolvency will affect what protections are available during a business transfer or takeover.
If the employer is an individual, or partner in a business, and has gone bankrupt and the business or its assets are sold, employees will not transfer to the purchasing company. They may be entitled to insolvency and redundancy payments from the National Insurance Fund. They need to have worked for the employer for at least two years. The amount due will be based on weekly pay, age and continuous employment with the employer.
Similarly, where a company is liquidated on grounds it is unable to pay its debts, employees will not transfer to a new employer. Again, they may be entitled to insolvency and redundancy payments from the National Insurance Fund.
The main purpose of administration is to rescue a company though this may not be possible. An administrator will try to get a better result for creditors than would be possible if the company was wound up. If neither of these is possible, an administrator will sell the company’s property to make at least some payment to creditors.
If the main focus of an administrator’s actions is to rescue the business or provide a better result for creditors without winding up the company then the employment contract is protected during a transfer or takeover. Some of the rights may be different than the protections during a normal transfer or takeover.
Voluntary arrangements with creditors
An employer who gets into financial trouble may be able to avoid liquidation or bankruptcy by entering into a formal arrangement with its creditors. This needs to be with the help of a licensed insolvency practitioner. If the employer is going through a voluntary arrangement the employment contract is protected during a transfer or takeover.
Administrative and other types of receivership
If the employer is in administrative or any other type of receivership, the employment contract is protected during a transfer or takeover. Although, some of the rights may be different to the protections during a normal transfer or takeover.