The effect of an administration process on employees will depend on the restructuring decisions implemented by the administrator:
Sale of all or part of the company
If the whole or part of the business is sold to a third party, all employees within this part of the business and their accumulated rights such as holidays, redundancy entitlement etc. must be transferred to the new company under TUPE
(Transfer of Undertakings) law.
If the new owner of the business then decides that any employees which have been transferred are not required for economic reasons, then they would have to be made redundant under standard redundancy rules. Their employment terms including length of service are the same as if they have remained employed by the original company.
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Closure of all or part of the company
If all or part of the business is put into liquidation, then any employees within this part of the operation will be made redundant by the liquidator. These employees will receive redundancy pay as per the terms of their employment contracts.
If the business is unable to pay the full terms of the employees redundancy then they are ranked as preferential creditors. This means that once all of the assets of the business have been realized, they will be paid after the payment of the insolvency's expenses. However this payment is subject to a maximum of £800. Any balance owed will be treated as unsecured debt in the same way as the company's trade creditors, and it is unlikely that employees will recover more than a small proportion of what they are owed.
Certain amounts are recoverable from the National Insurance Fund (NIF), but these payments are very limited.
Ongoing running of all or part of the company
If all or part of the company continues to run as normal, then the rights and positions of the employees in this part of the business will be unaffected.
However, in order to sustain the business without the need for further redundancies, the administrator may wish to introduce changes to employment contracts or hours of working.
