Put simply, most creditors in an insolvency situation are unsecured so get the left overs when other high ranking claims have been satisfied. Employees can fall into the higher category of preferential debts or claim certain payments from the State for some of their unpaid wages, any statutory redundancy payment, holiday pay, unfair dismissal basic award and statutory notice. Many are time limited and subject to the cap on a week’s pay which is currently £450.00.
Where before insolvency, there is a TUPE transfer then employees are protected and will transfer to the new business retaining their contractual rights and obligations (with some exceptions). This gives them a possible unfair dismissal claim also irrespective of service if they are dismissed. The rules however differ if the business is insolvent and the rules that apply depend on whether the business is subject to insolvency proceedings with a view to liquidation of the assets or not and the type of insolvency proceedings. These rules are too complex for this blog but the new business can escape liability for any employees if it is subject to the right proceedings.
Cases follow a similar line but anyone thinking of buying a business whether solvent or insolvent is well advised to seek specialist advice in this area rather than risk inheriting large liabilities/. staff. Employees who find themselves with an insolvent employer, or one which is at risk, may also want to seek such advice. If the administrators or liquidators are called in then they may be able to assist and normally in my experience provide the necessary forms to the employees to make any claims to the Secretary of State for the sums outlined in the first paragraph. If in doubt seek advice.