When a company becomes unable to pay its debts employment practitioners are likely to ask several questions. Will the employment contracts of the company’s employees be terminated? Can employees recover lost wages? What happens if a new company buys the insolvent company?
In order to address these issues, it is a good idea to have a basic knowledge of insolvency procedures. This paper aims to provide a basic introduction to the different types of corporate insolvency and to explore the consequences of the two principal types of procedure (administration and liquidation) on the employment relationship.
The principal focus of this paper will be on employee rights under an administration because a liquidation tends to be a clear-cut process that brings the employment relationship to an end and, for the most part, turns the liabilities of ex-employees into an unsecured debt. An administration, on the other hand, can have a variety of effects on employment rights and employer liabilities. To understand how those rights are affected in an administration, it helps to have a broad understanding of how an administration works and how employer liabilities rank in the hierarchy of debts.
This paper therefore:
a) Summarises the types of insolvency procedures;
b) Looks at the types of debts and the order in which they rank in an insolvency;
c) Examines the nature of:
and how they affect liabilities towards employees;
d) Explains the effect of corporate insolvency on the application of TUPE;
e) Describes the debts that are guaranteed by the State.
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William Meade (Senior Clerk)