Insolvency of Employer

If an employer becomes insolvent and/or ceases trading, this may mean that employees’ claims for unpaid wages and other payments due to them are in doubt. (By definition “insolvency”, as applying to a company, generally means that it is unable to pay its debts as they fall due, though the tests for accounting purposes and solvency calculations for regulated businesses are more complex than this.)

Where an employer that is insolvent or has ceased trading in the Isle of Man refuses or fails to pay due payments to employees, the Isle of Man Treasury may step in and make payments out of the Manx National Insurance Fund (MNIF). The statutory basis for making payments out of the MNIF is set out in Part XI of the Employment Act 2006.

To qualify to receive payments out of the MNIF, a) the relevant individual’s employment must have ended with the employer who is insolvent/has ceased trading and b) minimum Class 1 National Insurance contributions need to have been made during employment by such employer.

Payments in respect of unpaid wages, holiday and statutory notice may be claimed from the MNIF subject to proof of entitlement. There are specific forms provided for employees to notify claims – see resources below.

Depending on the circumstances, the below may be claimed from Treasury by an individual whose employment has been terminated:-

• arrears of pay of up to eight weeks
• notice pay (statutory)
• up to six weeks’ holiday accrued in the previous 12 months
• arrears of pay for time taken off to carry out trade union duties, attend ante-natal care, look for work in the event of redundancy or undertake duties as a pension scheme trustee
• basic award for unfair dismissal
• statutory redundancy pay

The debts mentioned are subject to a maximum amount of a week’s pay (as prescribed from time to time, currently £540[1]).

Manx Industrial Relations are quite often involved where an employer goes insolvent or ceases trading from the point of view of advising employees and liaising with Treasury to provide information on amounts due. Employers can also be required to provide information on claims against the MNIF for the purposes of determining whether they are well founded. Refusing or wilfully neglecting to comply with a request for information carries a potential criminal penalty.

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Reference:-

[1] https://www.gov.im/media/630419/employment-maximumamountofaweekspay-order2016.pdf

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Useful Resources:-

https://www.gov.im/categories/benefits-and-financial-support/employment-work-related/insolvency-and-cessation-of-business-payments/