In terms of English company liquidation statistics, what stood out about the year 2023 is that it kept pace with the unfavorable trend in the overall number of director disqualifications in England and Wales.
In almost every year since 1993, the insolvency rate of companies has been steadily increasing, reaching its peak in 2023 with over 25,000 companies shuttered. Hence, such growth indicates the necessity not just to understand company failure, but also the position of its stakeholders.
Both the employer and the employee have some advantages by knowing the process of insolvency, the law regarding it, and the places where these things happen.
What is Company Insolvency?
Company insolvency arises when a company becomes unable to repay its debt obligations because of a negative net worth situation, thus making creditors seek payments.
Commonly this may happen due to mismanagement, reduction in sales, or external shocks such as global recessions or pandemics. In insolvency, the company has a few options:
Liquidation: In this case, the debts incurred by the company are paid with the sale of its assets and this arrangement may be initiated by directors of the company or imposed due to an order by a creditor.
Administration: This is the option where an administrator is appointed with the hope that the company will be rescued or better deals for the creditors will be negotiated.
Company Voluntary Arrangement (CVA): In this scenario, the company needs to pay only part of the debt over time instead of the whole amount, and the company operates on new conditions, pending the approval of shareholders.
These procedures impact the stakeholders in different ways, for instance, it is usual that jobs will be lost when companies are placed in liquidation, whereas in administration or CVA where the company still operates some jobs may be saved.
Recent Statistics on Company Insolvency
The number of companies entering insolvency in England and Wales in 2023 stood at 25,158 or the highest number for approximately a decade. This consists of 20,577 Creditors’ Voluntary Liquidations (CVLs) which were up by 9% from the year 2022 as most directors decided to close down the business voluntarily rather than being involuntarily closed.
Other statistics from the year include 2827 creditor-initiated compulsory liquidations, 1567 administrators of distressed company attempts to restructure, 185 Company Voluntary Arrangements (CVA) to settle debts, and 2 receiverships where assets were disposed of to repay secured lenders.
This trend in insolvencies has been attributed to numerous economic headwinds such as inflation, increasing operating expenses, and changes in consumer habits and expectations that have affected SMEs very badly.
Employee Rights During Insolvency
If a company goes into bankruptcy, employee rights have been established so that there is fair treatment and scope for financial restitution too. These rights are aimed at ensuring that employees can be paid for wages and other dues even if a company cannot do so directly.
There are also some basic tenets – for example:
- Unpaid Wages: Out of the maximum cash the State would provide, each employee is entitled to be reimbursed an amount equating to eight weeks of unpaid salary, in case the firm has become bankrupt.
- Holiday Pay: Such holiday pay is to be calculated based upon monetary substitutes for up to one-seventh of the full leave period which the individual could not earn.
- Redundancy Pay: Employees who have more than two years of service will get redundancy payments that will take into account age, years of service, and weekly wages.
- Notice Pay: This amount is determined by several years the employee has rendered services to the employer.
- Protection from Unfair Dismissal: After two years of service, employees are safeguarded against unfair dismissal because management disregarded statutory procedures.
Such rights also hope to provide some financial relief to employees suffering due to the setback and how they have been affected by the insolvency.
How Employees Can Make Claims
Company liquidation does make it possible for its employees to demand compensation for unpaid wages, holiday entitlement, redundancy pay, and notice pay from the government’s National Insurance Fund which is run by the Insolvency Service.
However, proof of employment and amounts due to be paid to the ex-employee are usually needed and these come from the company or an insolvency practitioner.
Why Understanding Company Insolvency and Employee Rights Matters
The fact that a company is insolvent is beneficial to both employees and employers of the company. Employees are enabled to receive payment for their entitlements, while employers get to meet the purposes of employment laws and avoid legal consequences.
The increasing wind-up rates indicate weak areas of businesses and therefore both partners need to have strategies on how to cope with instability in the economy.
Conclusion
In the present situation, when the numbers for insolvent companies are on the rise, there is a need to protect workers’ rights in the face of corporate insolvency.
Where there are employees aware of the abuse of their rights and are willing to come forward and demand what they are due, there will always be employer duties to be performed and business to be safeguarded.
Being knowledgeable enables obstructive measures to be taken for businesses to be treated equally in times of economic hardship.
Also Read This – The Role of Specialized Staffing Agencies in Today’s Economy
