Advice Article

Employment Rights & Claims When a Company is Insolvent

Business Advice, Insolvency

Key things directors and employees should know in relation to their employment rights and claims when a company is insolvent

All employees are entitled to claim for monies owed to them from a company from the Redundancy Payments Service (‘RPS’).  The RPS will pay employees the amounts they are due (currently capped at £538 per week).  

The RPS will not process a claim unless the company is in the insolvency procedure, such as:

Directors, if they were employed (i.e. were paid under a PAYE scheme and had an employment contract) are employees and are also entitled to claim.

Redundancy pay under £30,000 is not taxed or liable to national insurance but other payments may be.

The RPS will pay the statutory amounts which are currently:

  • You can claim up to a maximum of 8 weeks unpaid wages.
  • Notice Pay – one week’s notice after one month’s service, two weeks after two years, then one week for every complete year you worked. The statutory maximum is 12 weeks.
  • You must have 2 years continuous service with your employer to qualify for statutory redundancy pay.  The number of weeks used to calculate your redundancy payment depends on your age and length of service and a table has been produced to help with this.  As a rough guide, it is approximately one week per year. Redundancy Calculations can be made here https://www.gov.uk/calculate-your-redundancy-pay
  • You can be paid outstanding holiday pay for up to 6 weeks, again up to the limit on a week’s pay.
  • Unpaid pension contributions

Maternity, paternity, adoption and sick pay – You cannot claim unpaid maternity pay, paternity pay or sick pay from the RPS under the insolvency rules. You can claim maternity pay from Her Majesty’s Revenue and Customs (HMRC) and sick pay from the Department of Work and Pensions (DWP).

Note that if you have income during the notice period (such as from another job or from state benefits) this will deducted from your claim.  Notice pay will not be paid until the end of the notice period has expired.

The claim process is commenced by completing a claim form online.  The form can be found at www.gov.uk/claim-redundancy.  The insolvency practitioner dealing with the insolvency will provide you with a reference.  It is important that you have a reference otherwise your claim will be sent back to you unprocessed.  The Insolvency Practitioner will also provide details to the RPS of the monies due to you.  If these amounts are different further information will be requested.

Any other claims that you have should be made against the person appointed to deal with the Company or Individual you worked for (i.e. the Liquidator, Administrator, Administrative Receiver or Trustee in Bankruptcy).  You will rank alongside any other creditor (person owed money) and will only receive payment if there is any money available to pay a dividend to unsecured creditors.

In some circumstances, your employer will not be in a position to provide consultation in regards to redundancy and if this is the case, you will be entitled to claim under the Employment Tribunal procedure, however any awards made will be unsecured claims in the insolvency and rank alongside any other unsecured creditors.

If the company is subject to a Company Voluntary Arrangement and subsequently goes into Liquidation or Administration, the RPS take the date of the Company Voluntary Arrangement as being the effective date of the Insolvency.  This can seriously affect the ability of the employees claiming for unpaid wages and holidays.

If a company enters into Administration and a sale is concluded prior to employees being dismissed, then the employees will transfer ‘TUPE’ to the purchaser.  The purchasing company will be responsible for any claims the employer has in respect of their employment.

It doesn’t take you long to realise why so many employees get confused about what they can or can’t claim, who they can claim it from and how long it will take them to get their money. 

Individuals, losing their jobs or facing redundancy can be under a significant amount of stress and worry.  If the individual has the information of their rights and entitlements and has the necessary help and support to complete any required documentation and deal with their claim, this can only make it a little bit easier for them.

We have provided a factsheet with more information on this subject here.

If you’d like to speak to a member of our team please call us on 01302 965485 or request a callback using the forms on our website.