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Jaeger’s problems are the latest warning for employers to know their duties to staff in cases of employer insolvency. Chris Weaver offers practical tips.
Fashion chain Jaeger going into administration marks yet another high-street retailer finding itself in financial difficulties. So what then are the responsibilities of employers to their workforce when their business is facing insolvency?
Once a company’s directors know, or ought to have realised, that there is no reasonable prospect of the company avoiding insolvency, they have a duty to minimise losses to creditors.
A failure to do so can lead to personal liability for wrongful trading.
In such circumstances, directors must take steps to place the company into a formal insolvency procedure to avoid the company incurring any further liabilities that it might not be able to meet in full.
Administration is the most common insolvency procedure. It is designed to promote rescue of the company as a going concern or efficient realisation of assets.
During administration a company is protected by a “statutory moratorium” – ie an automatic “stay” on legal proceedings against the company. In most cases, administration leads to the sale of a company’s assets to a third party buyer.
Because the administrator is the agent of the company, their appointment does not amount to a change of employer and employment contracts do not automatically terminate.
Instead, the administrator has a 14-day window in which to decide which employees the business needs and can afford. The administrator will