Updating author: Marc Meryon

On this page:
Summary
Future developments
Key references
Questions and answers
The Insolvency Act 1986
Meaning of "insolvency"
Recovery of remuneration
Procedure for claiming debt from an insolvent employer
Unpaid contributions to a pension scheme
Complaints to an employment tribunal

Summary

3.727

• Under the Insolvency Act 1986, any remuneration owed to an employee during the four months preceding an employer's insolvency is a preferential debt, taking preference over claims by other creditors. However, the maximum amount of that preferential debt is £800. (See 3.729 The Insolvency Act 1986 and 3.730 Meaning of "insolvency")
• Under sch.6 to the Insolvency Act 1986, amounts in excess of £800 (or for periods longer than four months), and other monies owed to employees by their insolvent employer, rank as ordinary debts. If an insolvent employer's liquidated assets are insufficient to satisfy every creditor's claim, the employees' claims rank equally with those of other creditors and will be paid in equal proportion to those other claims. (See 3.729 The Insolvency Act 1986)
• As there is no guarantee that employees will ever recover all of the monies owed to them by an insolvent employer, the Employment Rights Act 1996 empowers the Secretary of State to reimburse part or all of the monies owed to such employees out of the National Insurance Fund. The Secretary of State will then assume the role of preferred and ordinary creditor and attempt to recover at least part of the money from the employer's remaining assets. (See 3.731 Recovery of remuneration, 3.732 Procedure for claiming debt from an insolvent employer and 3.733 Unpaid contributions to a pension scheme)
• The Secretary of State's refusal or failure to pay monies owed to an employee by an insolvent employer may prompt a complaint to an employment tribunal. (See 3.734 Complaints to an employment tribunal)

Chapter 9: Termination of employment also includes a discussion of the consequences of insolvency.

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Future developments

3.728 There are no future developments.