Redundancy Employment – Insolvency

We asked the experts about Insolvency

We asked Henry Doswell, Solicitor at ThomasMansfield Employment Law Specialists to provide our members with a summary of employment law in respect to Insolvency.

“I am concerned that my employer might go insolvent. What are my employment rights should this happen?”

It depends on the type of insolvency proceedings as to the effect on the contract of employment. If the company goes into administration then an administrator is appointed to run the company and promote its rescue. The contracts of employment would not automatically terminate. However, the administrator may take the option of making some or all the employees redundant. They would be required to follow a fair redundancy procedure which would need to take into account the existing Statutory Dismissal Procedures under the Employment Act 2002.

employees are owed their remuneration as a preferential debt. This is limited to four months wages prior to the company going into insolvency. It will include any contractual commission or bonuses, overtime pay and maternity pay (only up to 4 months).”

If the company goes into receivership then a receiver is appointed to control the company’s assets in order to pay back any secured debts. They are normally appointed by a court and the employee’s contracts of employment would automatically terminate. However, where the company enters into voluntary receivership there is no automatic termination.Finally, if the company goes into liquidation a liquidator is appointed to take managerial control with the focus on winding up and paying the creditors. Where the winding up is compulsory (made by order of the court) the contracts of employment terminate automatically. Where it is voluntary, the contracts continue until the business stops trading. There is often a cessation of business after a voluntary liquidation and so employees are normally made redundant.

Once a company becomes insolvent employees are owed their remuneration as a “preferential debt”. This is limited however to four months wages prior to the company going into insolvency along with contractual commission or bonuses, overtime pay and maternity pay (only up to 4 months). More significantly though, the limit on this preferential debt is currently only £800. Any amount over this is an unsecured debt and unlikely to be recovered in full.

The employee does however have the option to claim their remuneration from the Secretary of State. The remuneration is then paid out of the National Insurance fund. However, the limits on this are also very low with a current statutory limit of £330 on a weeks pay. There is a limit of eight weeks on unpaid wages along with a limit of six weeks on unpaid holiday. A statutory redundancy payment can also be recovered. Any amount over this limit is again an unsecured debt.

For further information should you feel you have been subjected to insolvency speak to an employment law specialist at ThomasMansfield on 0845 6017756 or visit

The information given in this article does not constitute legal advice.


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