If an employer becomes insolvent it means that they do not have sufficient funds to pay their debts. This relates to debts owed to suppliers, landlords, clients and other third parties. However, it may well also mean money owed to employees of the company. The recent financial climate, and the collapses of many high profile employers has made this issue an even more prevalent one. Employees that find themselves in this situation should take legal advice from an employment law solicitor about the options available to them to recover any money they are owed.

In order to determine what arrangements apply, one must first determine whether or not the insolvency is to lead to a redundancy. A common misconception is that as soon as a company becomes insolvent, the employees automatically lose their jobs. However, it may well be the employer is looking to sell the business and therefore requests that you continue to work. Further, the employer may be in the process of securing other funds. In these circumstances you should still take legal advice from an employment law solicitor just in case your employer is unsuccessful and does become insolvent.

The most important thing to remember as an employee is that as long as you are working you are still entitled to your usual pay. Even if an employee is made redundant as a result of the insolvency, they are still entitled to redundancy pay. Your employment lawyer can represent you in any court hearing that may subsequently occur where employee pay is covered. However, what is slightly more complicated is the process through which the money owed must be recovered. Normal practice is for an insolvency administrator to be appointed to arrange the employer's finances. The administrator will then provide employees with information regarding recovering money and with application forms for reclaiming any money owed. An employment law solicitor should look over these forms and can help you complete this application to ensure it is accurate.

One way in which the money can be recovered is through an Employment Tribunal, which is similar to a court. Its purpose is to make decisions on a wide range of employment disputes, including non-payment of wages. Normally a claim must be submitted to within three months of the date when the most recent wages were due, but this is often extended if other methods, such as a grievance, are raised directly with an employer in the first instance. In these circumstances it is vital to obtain legal advice about your situation from an employment law solicitor. The solicitor will be able to assist you throughout the Tribunal??s hearing.

When the Employment Tribunal receives a claim the case is referred to ACAS, an agency that tries to negotiate a resolution between employee and employer. In many cases, disputes are resolved at this stage, and some sort of settlement is reached without the need for a formal tribunal. If not, the Employment Tribunal would decide the amount of money an individual is owed. Your employment lawyer can assist you throughout all these negotiations.

In insolvency many of the amounts owed to employees will be regarded as preferential debt, and therefore will be prioritised over many of the other creditors. These include any payments for any salary owed, holiday pay, redundancy pay and notice pay. Consult with the employment lawyer that is helping with your case about these areas of insolvency practice. It should be noted that this list is non-exhaustive, and an employment lawyer will be able to provide you with a more detailed and thorough list. However, it should be noted that there are limits on amounts to be claimed, and anything over these limits will not be viewed as preferential debt and may mean that these remaining amounts are similar to the amounts owed to other creditors in terms of preference.

It is sometimes the case that employers intentionally enter insolvency proceedings as a way of avoiding payment. In such cases, it is important that you obtain expert legal advice from an employment law solicitor. Further, it should be noted that any cases of an employer going insolvent should be dealt with immediately given that there are certain time-limits and deadlines that must be adhered to.

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