Maplin, Toys ‘R’ Us and Prezzo have become the latest big name businesses to fall into administration with the latter launching a company voluntary arrangement in order to restructure their finances to save the business.
Employees will naturally be concerned about the future and the likelihood of being paid wages and redundancy payments. Unfortunately, there are limited options open to employees. They may receive redundancy payments as part of the administration (if eligible) but in most cases this will be unlikely given the financial difficulties of the company.
The Insolvency Service’s Redundancy Payments Office can usually help with general advice and assist in processing payments from the National Insurance Fund. Most claims against the employer in an Employment Tribunal will be of limited value given the employer will have limited or no funds to meet any judgment but there may be cases where claims are required to protect employees’ interests.
However, whilst companies such as Prezzo are trying to save their business, they may look to sell off parts in order to do so. Would be purchasers should be aware of the impact of TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006) when buying a company in administration or an insolvent company.
TUPE contains provisions, which relax the usual automatic transfer principles with the aim of securing jobs continuing with a new employer where possible. Where the whole or part of the business or undertaking (subject to administration or company voluntary arrangement) is transferred to another entity as a going concern, the debts owed to relevant employees who are transferred alongside the business are paid by the Secretary of State out of the National Insurance Fund.
Employees will be paid (up to the statutory limits and in respect of the period before the insolvency) for arrears of wages and pay for holidays that have already been taken. They will not receive statutory redundancy payments, pay in lieu of accrued (untaken) holiday entitlements or notice pay, as they have not been dismissed. The new owner will be liable for any residual contractual debts.
The new owner can agree changes to contracts with the employees or their respective representative if the main reason is in order to protect employment by taking steps to ensure the business survives. Employees are still protected against unfair dismissals. A qualifying employee is unfairly dismissed where the primary reason is the transfer of the company and not for a technical, organisational or economical reason. The liability for such a claim would be against the new owner.
In the case where a company enters a winding up process, employees will not automatically transfer to a new owner and dismissals relating to the transfer will not be automatically unfair. This will give new owners more flexibility in terms of taking on current employees. The new owner can also take on the employees under new terms, effectively being able to vary their contracts without their agreement. Again, the main logic behind this is to save parts of the business and effectively jobs where possible.
The insolvency process is a worrying time for both employees and employers. It can also affect any potential buyers in various ways depending on the facts of the case and whether the insolvency practioners are looking to save the company or wind it up. With such complex law and pitfalls in place for all parties, it highlights again the need to obtain expert legal advice before proceeding.
If you're interested in any of the topics raised in this article, or for further information, please call to speak to one of the team on 0115 9888 777.