This week has seen two high profile retailers, BHS and Austin Reed, with many employees go into administration – what does that mean for employees of those businesses?
What is administration?
In simple terms, a company cannot pay its’ debts when they are due, the bank are no longer prepared to support them but it is believed that the business could be restructured or sold and remain viable in some form. Administration gives the company time to restructure or find a buyer or take some other steps to maintain an ongoing solvent business. An administrator is appointed to run the business whilst the options for the future solvent running of the business are explored and put into effect. During the administration legal actions against the company, such as claims for payment of debts, are suspended.
What happens to employees following the appointment of the administrator?
The administrator has 14 days to decide whether to continue to employ any employee.
If they continue the employment after the 14 days the administrator pays ‘qualifying liabilities’, i.e. salaries, including holiday pay and pension contributions as a priority debt payable ahead of the administrator’s own fees and expenses. The administrator may continue the employment until any restructuring takes place or may just continue for a short time, pending, for example, sale of stock. Notice pay or redundancy pay are not qualifying liabilities.
If the administrator decides not to continue employment, the employment ends. The employee then has possible claims for outstanding wages, holiday pay, notice pay, redundancy, breach of contract and failure to inform and consult. These claims are however unsecured and employees rank low in the priority for payment.
In the event that employees are not paid by the Company the National Insurance Fund guarantees a basic minimum. Claims from the Fund are made online by completing a Form RP1.