What happens to employees when a company goes into administration

Posted on May 30, 2023

Like many other businesses, North West companies have been hit by economic difficulties and corporation tax increases, with the double whammy of a cost-of-living crisis and rising inflation, coupled with the knock-on effects of the pandemic and Brexit, for some organisations, tough times have led to closures.

The construction and manufacturing industry has been hit by rising costs, with recent administrations up 34%, whilst hospitality and retail have similarly struggled.

Last year a record number of North West businesses fell into administration, large high street names as well as SMEs and already this year, the figures to March indicate that a large number of companies will enter into administration.

Administration and redundancy

Administration and redundancy often go hand in hand. As an employee, you may not know where to turn and may feel your employer has left you in the dark. However, you could be entitled to a Protective Award, which is essentially compensation of up to 90 days’ pay.

“This is a little known award; sometimes employers don’t even know it exists and certainly not the staff affected by redundancy, whose minds are on the loss of their job and livelihood,” said Partner and Employment Law, Alan Lewis, who specialises in protective award claims.

“The award can make all the difference to someone who has lost their job, but it pays to act quickly as a claim needs to be made within three months of being made redundant,” he added.

Protective Award Compensation

“For firms of 20 or more employees where there has been a failure by the business owner or administrator to collectively inform and consult if they have been dismissed on the grounds of redundancy, then the Employment tribunal can make the award of compensation,” said Alan.

Essentially, it is a penalty to be paid by the employer because your employer did not consult with you or any recognised trade union or elected representatives before you were made redundant. However, if your former employer is insolvent, the Insolvency Service will pay the Protective Award, but that is capped at eight weeks pay.

“The award also helps those who may not have been employed with the company for very long, as unlike redundancy payments, it is not necessary to have been employed for two years to make a protective award claim,” assured Alan.

The cap by the Government on the weekly wage means that the amount you can recover is currently £643 - so the maximum amount the government guarantee is £5,144.

To claim a protective award, employees must commence legal proceedings in the Employment Tribunal. However, at Pearson Solicitors, we are happy to chat through the process with potential clients and can then guide you through the process.

Working on a No Win No Fee basis, we will provide reliable legal advice on your individual situation.

“With other sectors struggling and companies now also grappling with paying back COVID loans, we could see more and more businesses failing and going bump, but staff need to know there is a way to make a claim and get some money to tide them over,” said Alan.

How can we help

If you have been made redundant as a result of a company going into administration and need advice on making a protective award claim contact our specialist Employment Law Solicitors on 0161 785 3500 or email enquiries@pearsonlegal.co.uk.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.