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What rights do your employees have if you go into administration?

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Administration is when a licensed practitioner is appointed to try and help your company to survive because it is failing. An administrator may enforce that either all or part of the company is sold on to someone else.

Your employees cannot make any immediate legal claims against you during this period as a ‘moratorium’ is emplaced.

A moratorium is a period of delay in legal obligations, meaning any immediate employee claims will be prohibited. It is imposed without needing the consent of the administrators or the courts as it stands as a fact enforced by the law.

On the date of the administration, company money is frozen after which it will be allocated to the creditors accordingly. Administrators have 14 days to categorise company creditors, any employees dismissed within this 2-week period become ‘ordinary creditors’ – persons who may get less than other creditors/no money at all.

Employees who administrators retain beyond the delegated 14-day period are ‘preferential creditors’ and stand a stronger chance of gaining back outstanding wages, holiday pay and occupational pension schemes.

If the business is bought off you by another party, employees will simply transfer to said party under the Transfer of Undertaking (Protection of Employment) Regulations 2006. Administrators are legally allowed to adapt transferred employee contracts as they deem fit so that changes are made to their terms of employment in order to ensure the business is kept stable and in harmony.

If your company is insolvent (unable to pay its debts) your employees are entitled to appeal and claim money owed under the National Insurance Fund. Under the Insolvency Act 1986, preferential creditors are entitled to their outstanding salary (including commission) for 8 weeks after insolvency is declared.

Preferred creditors can also be entitled to up to six weeks holiday pay and some pension payments. Other sums owed to preferred creditors are considered ordinary debt, along with that of other creditors.

In order to claim from the National Insurance Fund, employment must be terminated and employees have to be able to prove that they have done everything they can to get their payment, including applying to you in writing within a six-month period after their employment was terminated.

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