Insolvency

Insolvency is where an employer has no money to pay the people they owe in full and they have to make special arrangements to try to meet these debts.

If your employer becomes insolvent you have a number of options open to you.

Types of Insolvency

There are different types of insolvency, which have different names and different people who handle them.

If your employer is a company, or a limited liability partnership, insolvency means either:

• administration

• liquidation

• receivership

• voluntary arrangement with creditors

If your employer is an individual, insolvency means either:

• bankruptcy (sequestration in Scotland)

• voluntary arrangement with creditors

What happens?

Transfer of Insolvent business

Even if your employer cannot pay you, they might want you to carry on working for them while they try to sell the business. If you continue working and your employer's business is successfully transferred, your employment rights are protected, including any pay that is owed to you.

Lay-off/Terminate your contract

It is possible your employer is not officially insolvent but they still cannot pay you. In this case, they could be forced to lay you off or put you on short time.

Working for an administrator, receiver or liquidator

Sometimes a business may keep running if there is a chance that all or some of the business can be made workable or be sold on to a new owner. If this happens, you may be asked to continue working. This does not affect your rights to redundancy pay if the firm closes down later.

What you can claim

If your employer is insolvent, you might be able to claim:

• redundancy

• wages - up to a maximum of eight weeks

• holiday pay - up to a maximum of six weeks

• compensatory notice pay - one week after one calendar month's service rising to one week per year of service up to a maximum of 12 weeks (new earnings will be taken into account)

• There is a limit of £350 a week (£380 from 1 October 2009) on the amount you can claim for your weekly pay.

• If you are still owed any pay after your claim from the National Insurance Fund, you will only receive the amount if enough funds are released from the company's assets.

• Some debts, including holiday pay and wages will be a 'preferential debt' when your employer’s assets are shared out. This means they must be paid before certain other debts.