Directors & Employee Claims - Insolvent Liquidations

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Directors and Employee Claims – Insolvent Liquidations

Now that the furlough scheme has finally ended it may be that you as a Director are having to consider placing a company into liquidation, either  a creditors voluntary liquidation or possibly it will be placed into compulsory liquidation.

In such circumstances you will of course be concerned about the position of the (probably soon to be) ex-employees, and this may include you if you are an employee of the company.

Employee Claims and Insolvent Liquidations

Employee concerns when placing a company into liquidation

All the employees will be made redundant by no later than the eve of the date of any liquidation, and may well be dismissed without receiving notice and without being paid to the date of dismissal.

The “good news” though is that a scheme exists, operated by the Redundancy Payments Service, that will (subject to some limits) provide the funds to pay the claims of the by then ex-employees.

However, the scheme cannot be used until the liquidation has started as a liquidator must have been appointed. In the case of a creditors voluntary liquidation the liquidator will probably have assisted the Directors in the period prior to the liquidation and so will be able to act immediately and minimise any delay in helping the ex-employees.

The ex-employees will need to submit details of their claims on-line, and can’t do so until the liquidator has obtained a “CN” reference for the case, of which he will inform them as a matter of urgency. (It should be noted that in a compulsory liquidation the “gap” between dismissal and liquidation will be considerably longer before any payments are made to the ex-employees.)  

Potential Claims of Ex-Employees

An ex-employee may have a claim in respect of some or all of the following:

  • Wages, salary, bonuses and commission unpaid to the date of dismissal.
  • Holiday pay in respect of holiday taken but not paid for and/or holiday pay in respect of days “earned” but not yet taken.
  • Statutory Notice Pay. It is probable that the employee will have been dismissed with less than their contractual or statutory entitlement to a notice period, and so are able to claim for their wage/salary for this period.

  • Statutory Redundancy Pay. To qualify an individual must have been continuously employed for at least 2 years, and the amount of their claim will depend on their age and how long they have been employed. In this regard the rules are:
    • An employee aged 18 to 21 years old will receive half a week’s pay for every year he/she has been employed by the business
    • An employee aged between 22 to 40, then it’s one week’s pay for every year he/she has been employed by the business
    • An employee aged 41, and above can claim one and a half weeks pay for each year of their employment by the business

Redundancy pay may amount to a considerable sum so a Director might consider their entitlement to fund a creditors voluntary liquidation, rather than waiting for a compulsory liquidation.

  • Unpaid Pension Contributions. This is a particularly complex area and whilst the scheme will provide some cover the amount will depend on the particular circumstances of the pension scheme.
  • Unpaid Expenses. An ex-employee may be owed expenses (e.g., for travel) and whilst these will be a valid claim against the company they are not covered to any extent by the scheme.

The extent to which the scheme operated by the Redundancy Payments Service will pay is subject to limit, both as regards to time period and amount.  However, it does mean that the ex-employees will receive all, or a substantial part of any claim, even if the assets of the company are insufficient to cover the costs. 

Greenfield Recovery Can Help You

Greenfield Recovery is a well-known name in the fields of insolvency and business recovery.  Our advisors are always there to guide you on any aspect of insolvency, including of course the best way to deal with your employees. 

If you wish to discuss the matter of employee claims and placing a company into liquidation, or any aspect of a liquidation then please do get in touch.  Call 0121 201 1720 or send an enquiry below.  A member of our customer-friendly team will contact you, in confidence, as soon as possible.