What happens to employees when a company goes into administration?

Since the start of the 2024/25, two Scottish football clubs have been placed in administration – Dumbarton and Inverness Caledonian Thistle. In the case of Inverness, one of the first casualties was its manager, Duncan Ferguson.

Administration is an uncertain time for a business and its staff but with a report that  20 parties are interested in buying the club, what are the rights of employees if their employer is subject to administration?

Continuity of contract?

The first 14 days of any administration are of key importance for any employee.

Employees who are not made redundant within the initial 14 days have their employment rights adopted by the administrator.

This means that those employees will continue to collect their usual pay entitlements. However, the administrator may renegotiate remuneration packages to safeguard the business. The administrator may also ask employees to defer their pay to be collected later.

Where an employee is not made redundant within the first 14 days, they will become a “preferred creditor” to the company.  This means that if they are later made redundant, they will stand a greater chance of recovering what is due to them.

Preferential creditors can claim up to £800 in outstanding salary and commissions, up to six weeks of accrued holiday pay, and some occupational pension payments.

Ordinary creditors are the lowest bracket among creditors. As a result, ordinary creditors must wait until everybody else above them has been paid before they can expect to see payment. Often there is no money left by this point.

However, if an employee falls into this bracket, they may still be able to make a claim through the Redundancy Payments Service (RPS).

Redundancy?

Employees who are unable to claim some or all of their statutory entitlements through the company can instead claim through the Redundancy Payments Service. The RPS is a UK government service which draws from the National Insurance Fund.

Staff are entitled to redundancy payments after two years of service. Through the RPS, they can claim:

• Redundancy pay
• Outstanding holiday pay
• Wage arrears
• Notice periods worked but not paid
• Loss of notice compensation
• Employment tribunal awards

The RPS calculates payments based on what employees are paid each week. For claims made after the 6th of April 2024, weekly pay is capped at £700. The maximum redundancy pay is £21,000.

What if the administrator sells the business?

Staff who remain under contract will be granted protection under the Transfer of Undertakings (Protection of Employment) Regulations 2006, or TUPE if the business is sold.

The TUPE Regulations are worded in such a way that the terms and conditions of employment are protected on the transfer for a business and can only be amended in some limited circumstances.

Employees who feel their TUPE rights have been infringed can claim through an employment tribunal.

Get in touch

If you require any advice in relation to any of the topics discussed above then contact our Employment Team.