The business world was rocked last week by the news that two of the UK’s most established companies had gone into administration.
Electrical retailer Maplin and Toys R Us have confirmed that stores will remain open for now but more than 5,000 jobs are potentially at risk.
Neither firm was able to compete with the prices or online shopping experience of eCommerce sites such as Amazon.
So what is the situation facing their worried employees?
Kelly Tucker, managing director of HR consultancy HR Star, shed some light on the subject for BusinessCloud.
“Going into administration doesn’t automatically mean a company is going out of business – what it does is allow time for options to be considered to see if the company can recover,” she said.
“For Maplin, administrators PwC have said there are no plans to close stores or make redundancies at the moment, while it explores ‘all opportunities’ to find a new owner.
“While the administrators do their bit, for employees the first 14 days of the administration period are crucial. If an employee is made redundant during this period, they become an ‘ordinary creditor’.
“This means they will be in the last category to receive monies owed, such as outstanding wages and commission up to a maximum of £800, redundancy pay, up to six weeks’ occurred holiday pay and any pension contributions.
“However, their entitlement to outstanding wages and redundancy payments will remain.”
She continued: “If retained beyond this two-week period, the employee becomes a ‘preferential creditor.’ As the name suggests, this decision is preferential to being made redundant during the period as it put the employee in a better position should they face redundancy later on.
“It gives them priority over ‘ordinary creditors’ and they therefore stand a better chance of recouping monies owed to them.”
Maplin employees could be asked to take a pay cut to help the company survive.
“Once the initial 14-day period is over, the employment rights of staff are then effectively adopted by the administrator,” said Tucker.
“The decision on how to proceed then lies with them – for example, they may or may not ask employees to take a pay cut in order to help the company survive if a buyer still has not been found.
“Alternatively, they could request that employees defer a proportion of their pay, again in a bid to save money and help the company. However, if the company cannot be saved, this becomes part of the monies owed to employees as preferential creditors.
“If the business is purchased by a new company, TUPE legislation applies and employment rights are protected.
“However, should the old company be liquidated and closed down, employees may only receive a proportion of their wages and other payments.”