What all employees need to know if a company goes to the wall

What does administration mean for employees? asks Mandy Laurie

Christmas always brings back happy memories of my time working in Topshop. With live DJS entertaining shoppers, it was a fun place to work as a teenager in the late 80s.

Power dressing was in, and breaks were spent buying school friends their first oversized suit with staff discount. I can still remember the names and personalities of those I worked with, many of whom had a career in fashion retail planned for life, and wonder how they have been affected by the announcement the chain was being put into administration. So what does administration mean for employees?

On appointment, the administrator essentially takes over the running of the company, and their first task is to put forward proposals on how they are going to deal with the business.

Broadly, the administrator will assess whether the company can be rescued as a going concern or has to be wound up with assets distributed amongst creditors. Either scenario can result in job losses.

To save the company and allow it to continue as a going concern, restructures may be required to achieve efficiencies. The company, or part of it, may be bought over by another business resulting in some or all of the staff transferring to a new employer which could involve TUPE considerations. If a decision is taken to wind up the company, the entire workforce could be declared redundant.

The main difficult y for employees is the uncertainty which ensues while these considerations are being made. Will they continue to get paid? Will they continue to receive sick pay

or maternity pay? If redundancy is declared, will they receive their statutory entitlements?

If there can be any reassuring words in such a difficult situation, it is that administration does not automatically bring employees’ contracts to an end. They will continue until clear decisions are made. An administrator may choose to “adopt” the contracts, essentially stepping into the shoes of the employer to run the business. If they do, employees’ wages and salary, including holiday pay, sick pay, payments in lieu of holiday and contributions to occupational pension schemes will be given precedence for payment.

Employees should also be aware that the administrator, having stepped into the shoes of the employer, can do all the things open to any employer, including utilising the Government’s job retention scheme by furloughing employees. Where the contracts have been adopted, there is every hope the business can continue to trade and all employee liabilities met without too much difficulty, including notice and redundancy payments. If that is not the case, employees may look to HM Revenue and Customs to meet statutory payments, such as sick pay or maternity pay.

Employees should be aware that unpaid wages accrued prior to the administration will only rank as an unsecured claim. Given the potential limitations, employees should weigh up the viability of payments being made before embarking on litigation. On a personal note I hope the Topshop brand can be saved, along with the jobs of its staff, and that they will be around to create more Christmas memories in years to come.

Mandy Laurie is an Employment Partner, Burness Paull