Insolvency and Employment Law: Failure and Workplace Rights
Insolvency and employment law tests the routes into and out of financial failure, and the legal protections around work. ACA questions often combine priority of claims with employment rights on termination or transfer.
Insolvency
Corporate insolvency includes administration (rescue, moratorium), CVA, creditors' voluntary liquidation, compulsory liquidation and receivership. On liquidation, expenses and preferential debts (limited employee claims, certain pension contributions, HMRC secondary preferential) rank ahead of unsecured creditors; floating-charge holders rank after preferential claims and prescribed part. Fixed-charge holders are paid from their security. Directors may face wrongful trading (continuing to trade when insolvent liquidation is inevitable) or fraudulent trading. Individual insolvency includes bankruptcy and IVAs.
Employment
Employment status determines rights. Employees need two years' continuous service for ordinary unfair dismissal (subject to exceptions), and dismissal must be for a potentially fair reason and within the range of reasonable responses. Redundancy requires a genuine redundancy situation and fair selection. Equality Act 2010 protects protected characteristics; discrimination can be direct, indirect, harassment or victimisation. TUPE preserves terms on a relevant transfer.
Worked example: An employee with three years' service is dismissed for persistent lateness without warnings or hearing. She has qualifying service. The employer must show a fair reason and a fair procedure; absence of warning/hearing makes dismissal unfair even if lateness occurred. Compensation may be reduced for contributory fault.
Traps: assuming all workers are employees; forgetting the two-year threshold; treating redundancy as automatically fair; mixing preferential and secured claims.