What Happens to Employees When a Company Goes into Administration

As an employee of a company that’s going into administration, or a charity that’s going into administration, you may be left in the dark and are unsure about what happens next.

When a company is going into administration it doesn’t necessarily mean that it will close down. The process of going into administration provides breathing space and enables actions to be taken to keep the company up and running, with the possibility of returning back to being profitable again in the future.

But what happens to employees during this period?

You Could Face Termination of Employment

In the administration period, the first 14 days are crucial for employees. If you’re made redundant during this time, you’ll be put into the last category to receive monies owed and will become an ‘ordinary creditor’. You will still retain your entitlement to redundancy payments and outstanding wages.

If you are lucky enough to retain your employment beyond the two-week period, you will become a ‘preferential creditor’. This position is far better to be in should you face redundancy later on.

This is because as a preferential creditor you are entitled to claim:

  • Up to a maximum of £800 in outstanding salary and commissions – this covers the four-month period prior to the insolvency
  • Accrued holiday pay for up to six weeks
  • Some of your occupational pension payments.

Any payments that are owed from before the four-month period will be paid as if you are an ordinary creditor.

So long as you are aware of the amount you are to be paid, you can claim any shortcoming by making a claim via the Insolvency Practitioner and then contact the Redundancy Payments Service (RPS).

This claim is made from the National Insurance Fund.

If you need assistance with this process, Irwin Insolvency specialises in personal insolvency advice. Contact us today to see how we can help you.

Contact Irwin Insolvency today for your free consultation

Call us
0800 254 5122

About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency,
 rescue and turnaround.