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Employees rights on Insolvency

When a business is in financial trouble – the owners as well as the employees are involved.

There are various schemes available to the ailing business, to try and avoid insolvency  - such as informal agreements with their suppliers and their bank to allow them time to re-structure and find a way of paying monies due.

There are also the processes set down in the Insolvency Act 1986 – such as administration and company voluntary arrangements -  which may give the business a formal ‘breathing space’ to enable it to restructure and/or trade its way out of financial trouble.

If the business still fails, and the employees lose their jobs (made redundant) then they can claim their salaries/notice pay/outstanding holiday pay etc – from the Redundancy Payments Office – RPO.


Or can they?

In the case of Secretary of State for Business Enterprise and Skills McDonah and Others – a company had financial difficulties. It contacted a licensed insolvency practitioner and it was decided that it may be able to trade its way out of difficulty. To protect it from other creditors, the company went into a voluntary arrangement. However, none of the employees were aware of this.

Unfortunately the voluntary arrangement did not work, and the company had to go into liquidation. The employees were notified that the company was closing. The company had no money to pay redundancy etc, so the employees were given the RP1 forms to claim the monies due to them from the Redundancy Payments Office (‘RPO’).

The RPO refused to pay out their claims – as this was a second insolvency procedure for the company. The employees sued.

The Courts decided that the RPO was right not to pay out. The fact that the company had gone into a voluntary arrangement was the first insolvency procedure – the liquidation of the company as a result of the failure of that voluntary arrangement was the second insolvency procedure.

The employees should have claimed when it went into the first one – the voluntary arrangement.

But the employees did not know of the voluntary arrangement! It does not matter – it was there.


So – what should the employer do if it goes into a voluntary arrangement?

Answer – speak with the insolvency practitioner – decide what will happen to the company when the employees are notified – are they likely to leave? If so – could the company survive? Employees therefore have to be taken into account within the discussions for a voluntary arrangement and the continued viability of the company


What can the employee do?

It is free to search against any UK  company on the Companies House website. Check periodically against the name of the company – as all insolvency procedures (voluntary arrangements, administrations, liquidations ) – have to be notified to Companies House and will show up on the free register.


For business insolvency advice – contact Quality Solicitors Dunn and Baker Litigation Team.

To us – business matters.