Employees of Insolvent Company

In previous articles I have explored how a company is wound up by order of the court (for non-payment of debts for example) and steps to take in respect of the company itself (see for example the following link: Insolvency Issues – A Manx Perspective). One oft overlooked aspect of a winding up is what happens to the company’s employees.

Strictly speaking, when a court makes a compulsory winding up order, then this is deemed to be notice of termination of the employee’s contract of employment. In turn, this constitutes wrongful termination and an employee may be entitled to damages. The problem is that the company is unlikely to be able to pay and so the employee must look to government for recompense.

Per the Employment Act 2006 (act of Tynwald), employees may claim the following directly from the Treasury:

1. Arrears of pay in respect of one or more (but no more than 8) weeks (including amounts owed in respect of a payment for time off) for:
   a) Trade union duties;
   b) To look for work;
   c) Ante-natal care;
   d) Pension scheme trustees

2. Any amount payable by the employer to the employee for their statutory minimum notice period, rather than their contractual
period.

3. Any holiday pay not exceeding 6 weeks and to which the employee became entitled during the 12 months ending with the relevant
date;

4. Any basic award of compensation for unfair dismissal

A week’s pay is up to a maximum of £540.00 per week. In addition to this, a person competent to act on behalf of an occupational or personal pension scheme may also claim from the Manx Treasury contributions that were payable by the employer, being the least of:

a) balance of relevant contributions remaining unpaid on the date the employer becomes insolvent and payable on his or her
own account to the scheme in the immediate 12 months;
b) an amount certified by an actuary to be necessary for the purpose of meeting the liability of the scheme on dissolution to pay the
benefits provided by the scheme to or in respect of the employees; and
c) an amount equal to 10% of the total amount of remuneration paid or payable to those employees in the preceding 12 months.

This amount cannot exceed the amount deducted from the pay of the employee in respect of the employee’s contributions in the previous 12 months.

Under the Redundancy Payments Act 1990, the employee may claim a redundancy payment from the Manx Treasury which is calculated as follows:

P x Y
P is the lesser of the amount of a week’s pay for the employee and £540
Y is the lesser of the number of completed years for which the employee has been in employment and 26.

Procedure

The employee can claim redundancy, wage and holiday debts through form IP1.

They can claim their notice period (less any amounts received through new employment) through IP2 once the statutory notice period has expired.

If the company has a liquidator appointed, then that officer must file a written statement to the Treasury explaining the amount of the debt owed to the employee on the relevant date.

Employees who have been beneficial owners or directors in the preceding 12 months of insolvency cannot make any claim to the Manx Treasury.

M&P legal have a dedicated team of employment law specialists who can assist with all local employment issues.

Damian Molyneux is a director of M&P Legal specialising in, amongst other things, liquidations. He can be contacted on dpm@mplegal.im This article does not constitute legal advice, specific advice should be sought for individual circumstances.

Damian acknowledges (with thanks) the assistance of John Aycock, Director of M&P Legal.

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