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Can I pursue an Employment Tribunal Claim against an Insolvent Company?

With no end in sight to the current recession, many companies are making redundancies and many more are being placed into liquidation. As a consequence Employment Tribunal claims can hit a dead end if the firm becomes insolvent.

I have come across a number of cases recently where, part way through a claim for unfair dismissal in the Employment Tribunal, the company has been placed into liquidation or administration. Often, to rub salt into the wound, the employee subsequently discovered that a new phoenix company has been set up in order to acquire the assets, goodwill and employees of the company in liquidation. There are a number of potential options open to an employee in such circumstances, namely:

The sale of assets and goodwill to the new phoenix company could be challenged on the basis that it is a transaction at an undervalue. In such circumstances, the directors could be personally liable for any loss to creditors.

A complaint could be made to the insolvency practitioner/liquidator that the conduct of the directors should be investigated. In many instances, it may be the case that the directors and shareholders have undertaken a similar phoenixing operation in the past. This could lead to the disqualification of the relevant directors.

Whilst making an employment claim during the process of insolvency can be difficult and certainly more complicated than if the company were in good health, the claim could still be successful. It may be worth seeking specialist employment legal advice before making a final decision.

 As an employee you should consider the following:

1. Does the company’s insolvency have the effect of automatically stopping legal proceedings? For example, in an administration Employment Tribunal proceedings cannot be continued without the consent of either the Administrator or the Court. Similarly, Employment Tribunal proceedings cannot be continued without the permission of the Court once a winding up order has been made.

2. Can your claim be pursued to the National Insurance Fund for payment of unpaid wages, notice pay or a statutory redundancy payment? The National Insurance Fund will not guarantee payment of a basic award for unfair dismissal unless liability has first been assessed by a Tribunal. In such circumstances, if an employee’s basic award for unfair dismissal is particularly high, it may still be worth pursuing such a claim.

3. Is it worth pursuing the claim? If a claim is pursued for substantial compensation arising out of unfair dismissal or discrimination the legal costs involved would be high and if successful the compensation recovered would probably only be a small percentage of the full value of the claim from a company in liquidation.

4. Is it worthwhile submitting details of the claim to the company’s insolvency practitioner? On the basis of a recent High Court decision, such a claim would be provable in an employer’s insolvency even though no liability has been determined by an Employment Tribunal. However, the likelihood would be that an employee would still only recover a small percentage of the value of their claim.

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