CHOICE OF INSOLVENCY OPTION & EMPLOYEES

THE TYPE OF INSOLVENCY CAN HAVE A SIGNIFICANT IMPACT ON EMPLOYEES, ESPECIALLY WHILST STAFF CAN BE FURLOUGHED

Employees and the future prospect of a business being able to continue trading after insolvency (i.e. through a sale of business) are key considerations in any insolvency, but that decision is even more important in these unprecedented times.

In simple terms, in a liquidation employment of employees tends to terminate upon appointment of the Liquidator, and the business usually comes to an end (i.e. no prospect of a sale of the business as a going concern). Whereas an Administration process provides protection under a moratorium for the business to continue trading, this includes retaining some or all employees with the hope many jobs will be saved by being TUPER transfer to a new company.

Under the current circumstances, with staff being furloughed, and the start date being crucial for any claim, the type of insolvency becomes more important. If a company is in administration, the administrator will be able to apply for support under the Cover Job Retention Scheme (like any other employer that qualifies) but only where there is a reasonable likelihood of the Administrator bringing the employee back to work after furlough. 

In the first case to look at the Scheme the High Court in Carluccio’s Limited (in administration) [2020] held that administrators who apply for a grant under the Scheme are able to apply funds to the payment of wages in super-priority to all other costs and expenses of the administration.

These means Administrators are able to utilise this scheme to cover costs of trading period (or lock down period whilst sold) if there is a prospect of saving jobs

If you are considering insolvency, please speak to a licensed insolvency practitioner to understand all the key decisions and the implications particularly at this time. We offer a free consultation and are happy to talk through the options available to directors call 07972928153 or email lucinda@lminsolvency.co.uk