15 Jan 2018

What does 'in administration' mean for employees?

What does 'in administration' mean for employees?

The recent announcement from construction giant Carillion in recent days have left thousands of staff fearing for their jobs.

But what does 'going into administration' mean for employees?

Our employment law team has produced this simple guide to explain how staff may be impacted and what their options are.

What is administration?

A company becomes ‘insolvent’ if it is unable to pay its debts as they fall due or if the company’s liabilities exceed its assets.

In these circumstances there are a number of routes in which a company may take, one of which is entering into administration where an ‘administrator’ is appointed to carry out a reorganisation/restructure of the company or to realise its assets.

This often leads to the company being sold to a third party - but only where a buyer can be found who is willing to purchase the company.

In the scenario where an administrator is appointed, employees should be aware that they could possibly face having their employment contract terminated through redundancy or otherwise, or having their employment ‘transferred’ to the buyer company.

Potential claims for employees 

Depending on the circumstances, an employee could possible have a claim against the insolvent employer for: 

  • Unpaid salary
  • Unpaid benefits
  • Unpaid notice pay
  • Statutory redundancy pay
  • Unfair dismissal
  • A protective award where collective redundancies were made without required consultation/statutory information
  • In the case of a transfer of their employment, a claim for failure to inform and consult under the TUPE regulations

Claim to the administrator

An employee can make a claim for any of these by lodging a claim form with the administrator.

A claim form is obtained from the administrator and is a fairly straightforward form which will ask the employee to complete details of the claim they are making.

However, making a claim to the administrator usually means that an employee claim will be classed as an ‘Unsecured Debt’ and the employee may only receive a certain amount from the administrator rather than the entire amount that they are claiming.

Claim to the National Insurance Fund

However, where an employee’s employment has been terminated, an employee could make a claim to the National Insurance Fund (NIF).

The NIF usually will make payment to an employee of:

  • Up to 8 weeks unpaid salary
  • Up to 6 weeks holiday pay
  • Statutory Notice pay
  • Statutory Redundancy pay
  • Basic Award for Unfair Dismissal (where already determined by Tribunal)
  • Protective Award (where already determined by the Tribunal)
  • Some pension contributions

To make a claim to the NIF, the employee must complete a Form RP1 online through The Insolvency Service. The administrator will provide each employee with a factsheet providing them with all of the information that they need to make a claim to the NIF in this manner. Once the claim has been made, the Secretary of State will then make a decision as to whether or not they will accept the employee’s claim. 

Liability for other statutory payments such as sick pay, maternity/paternity pay or shared parental pay pass to HMRC from the date of the formal insolvency.

An employee would be wise to make a claim both to the NIF and to the administrator to maximise their chances of recovering as much of the debt owed to them as possible.

Expert advice

Aberdein Considine has a team of employment lawyers spread throughout Scotland, including the cities of Aberdeen, Edinburgh, Glasgow, Perth and Stirling.

If you would like to speak to an expert about your case, call 0333 0044 333 or click here

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