My company is insolvent – what happens to my staff?

Understanding TUPE and redundancy pay for employees following insolvency

When a company becomes insolvent, one of the major concerns for directors is what happens to their employees.

Even when a company is technically insolvent, it’s not a foregone conclusion that the business will close down. When a business is viable, yet is struggling with financial and/or operational challenges, plans may be put in place to steady the company and allow for trade to continue. 

This can be done by way of company administration, and may ultimately involve a sale of the business and its assets to another company. If the business is sold on as a going concern, employment contract terms and conditions are safeguarded under a piece of legislation known as TUPE - Transfer of Undertakings (Protection of Employment) Regulations, 2006.

What happens to employees in liquidation?

Unfortunately, not all rescue attempts are successful, and should the business be unable to be saved and is liquidated, the company will close down and all jobs will be lost. In this instance, employees are able to claim statutory payments such as arrears of wages and outstanding holiday pay.  Some members of staff may also be eligible for redundancy pay if they have worked for the company for at least two years. 

If the company has enough money, then all redundancy claims will be met from the sale of company assets. Under these circumstances employees are regarded as ‘preferential’ creditors, which means they rank higher than most other parties who are owed money by the company.

There are limits to the amounts that can be claimed as a preferential creditor, however, which are:

Any shortfall in these payments can be claimed from the National Insurance Fund (NIF).

 

 

 

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Claiming from the National Insurance Fund (NIF)

The National Insurance Fund is made up from employer, employee and self-employed NI contributions. If there aren’t enough funds for the liquidator to pay claims, employees can use form RP1 to make a claim from the NIF for:

“Spoke with Chris who put me at ease straight away. He was very knowledgeable and listened intently to all my worries and concerns. Will definitely be using Real Business Rescue and advise anyone with business issues to give them a call.”

Diana

 

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Chris Bristow
Business Debt Expert

Employees’ rights to claim redundancy pay in liquidation

If your employees have worked under a contract of employment for a continuous period of two years or more, they may be eligible to claim redundancy pay. The same applies to yourself as a director if you can also prove your status as an employee.

Redundancy payments are calculated according to age, length of service (capped at 20 years), and weekly wage. Your employees must make a claim from the company within six months of losing their job, and if the company cannot pay, redundancy pay can be claimed from the National Insurance Fund using form RP1.

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Some employees may retain their job

If the company is deemed viable for the long-term, even though it’s currently insolvent, it’s possible that your employees could retain their jobs. Should a Company Voluntary Arrangement (CVA) be appropriate, for example, the company may be streamlined in such a way that avoids job losses.

Company administration is another formal insolvency procedure whereby jobs may be saved, but this depends on the circumstances of each case. Any employees who aren’t made redundant during the initial 14 days of administration become ‘preferential’ creditors if they’re made redundant at a later date by the administrator.

How Real Business Rescue can help with company insolvency

Real Business Rescue can provide further guidance on what may happen to your staff if your company is insolvent. We operate from over 100 offices around the country, and are able to offer free same-day consultations to quickly identify your requirements.