The difference between compulsory liquidation vs voluntary liquidation is essentially how the company is put into liquidation and who initiates...
The business you work for is in financial difficulty
When a business closes down, the focus seems to always be on the company itself and its Directors. In the case of large businesses going under and making the news, the number of those left unemployed by its collapse are often mentioned just as a statistic.
Of course, every job lost is a personal disaster for those who find themselves unemployed. In many cases, such workers are entirely blameless for the company’s demise, but still end up ‘paying’ for it.
Not only is there an inherent unfairness of losing a job despite working hard and diligently, former employees of a company lost to insolvency may find themselves, depending on the circumstances, having to accept less pay for the work they’ve done prior to the collapse and wait longer to be paid it. This is because, while employees have protected rights and the Government will pay money that is due to them, there are limits on what the Government will pay.
They didn’t say ‘insolvency’, it’s something else…
The word ‘insolvency’ might not be used, at least not during a staff briefing, but ultimately, businesses in financial trouble are usually insolvent or at risk of becoming so.
You may hear ‘liquidation’ or ‘administration’ for example – these being two different ways of dealing with insolvency. In the same way that the title ‘Insolvency Practitioner’ might not be used, we’ll probably be referred to as ‘The Administrator’ or ‘The Liquidator’ depending on the method chosen to deal with the insolvency.
Liquidation and Administration
Liquidation typically signals the end of the business. The company closes its doors and everything of value is sold off for as much as possible and the funds distributed amongst its creditors (those the company owed money to). If you’re owed wages, holiday pay, redundancy pay, and payment in lieu of notice then you will need to make an application to the Government for these monies to be paid.
Administration on the other hand, means that the company will be handed over to an ‘administrator’ – someone who will take over the running of the business for the short term while they assess what’s the best thing to do with it. The administration process may lead to the business being closed if it’s decided to be unviable, but otherwise, there may be changes implemented, deals made with creditors and protections applied to give the business a chance to recover. Some jobs may still be lost as a result of the company being in administration, but chances are that others will be retained. If you are one of those who loses their job you will still be paid the money that you are owed by the Government.
What do I do if my employer becomes insolvent?
All employees have protected rights when a business becomes insolvent and cannot pay its staff. The insolvency practitioner appointed by the business should give you full guidance about how to reclaim the monies that are due to you. There is also a lot of information on the Government website (GOV.UK) about how you need to go about your application.
As insolvency practitioners looking after the insolvency of a company, our first duty whether as liquidators or administrators, is to that company’s creditors. Which means that we’ll do the best we can to secure the best result for everyone the business owes money to. This includes the employees of that company.
We’re experts at dealing with companies with problems and the best result is always that the company continues to trade profitably. If we’re brought in as administrators that can be a positive sign which suggests we might have been brought in early enough to fix things and rescue the business.