Phoenix companies and unfair dismissal claims

by Redmans Solicitors on January 16, 2013

  • SumoMe

If an employee has been successful against their employer in an Employment Tribunal claim but the company has already (or has subsequently) gone into liquidation then they may have problems enforcing any Order for compensation that they’ve been awarded by the Employment Tribunal. However, what’s the situation if the employee believes that the directors of their previous employer have subsequently incorporated a new company for the purpose of carrying on the same business? In this post we’ll take a brief look at this issue and consider the options available to employees in these circumstances. We’ll do so by examining the following:

  1. When might you have problems enforcing an award of compensation?
  2. What options do you have if the company you are claiming against is insolvent?
  3. What can you do if you think that a “phoenix” company has been started up?

When might you have problems enforcing an award of compensation?

If you’re claiming against that company and that company becomes insolvent then the directors of that company might put it into liquidation (also known as “winding up”). We won’t go into the procedure for liquidating a company here but will focus on the outcome of doing so – the selling of all of the assets of the company, the distribution of money to creditors of the company, and the dissolution of the company by the Registrar of Companies. Once the final act occurs then there is nothing for a successful Employment Tribunal Claimant to enforce their Order against.

What options do you have if the company you are claiming against is insolvent?

You have three potential options in these circumstances:

  1. Allege that there has been a transaction at an undervalue, which had the intention of defrauding the creditors of the company (as a successful Claimant you’ll be a creditor). If the directors liquidate the company and start a new one up then this cause of action may be made out if the intention was to avoid liabilities that had accrued to former employees
  2. Complain to the liquidator of the company about your former employer; and/or
  3. Notify the Insolvency Service if you believe a director of your former employer is trading under the name of the insolvent company

What can you do if you think that a “phoenix” company has been started up?

If you think that a “phoenix” company has been started up by former directors of your previous employer (which is using the same or a similar company name to your previous liquidated employer) then these directors may accrue civil and criminal liability for doing so. Under the Insolvency Act 1986 these directors may be held personally liable for the debts of the new company and they may also be liable to criminal penalties.

It’s recommended that you obtain employment law advice from a specialist solicitor if your former employer is going or has gone into liquidation.

Redmans Solicitors are employment law solicitors based in Richmond and the City of London.

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