Employees get paid in Liquidation and Administration
This article looks to provide you with the knowledge you need to advise your clients on the rights of employees, should they need to close their Company but can’t afford the redundancy costs. If this is the case for you then it should be stated that technically you are considered to be insolvent and therefore you should be considering placing your Company into Liquidation or Administration. However, all is not lost, particularly for employees of an insolvent company, as they have a right to claim their entitlements from the government where if paid, the government then becomes the creditor within the Liquidation or Administration for the sums they have paid out to the employee. The rules are however different for Pre-Pack Administrations therefore contact me for further advice if this process is being considered by you.
What can an employee of an insolvent company claim for?
• Arrears of Pay – if the employee has unpaid wages then they can claim for anything up to 8 weeks worth of arrears at their rate of pay (but up to a maximum rate of £450 per week). If the employee is owed more weeks than 8 weeks wages then their highest earning 8 weeks can be claimed as the weeks claimed do not need to be consecutive. This is however taxable.
• Holiday Pay – An employee can claim for whatever holiday days that they have accrued in their current holiday year (up until the point of insolvency) less what they have taken already. Again, this is at their rate of pay (but up to a maximum rate of £450 per week) but this time can only be for anything up to 6 weeks pay. This is also taxable.
• Pay in Lieu of Notice – This is claimable if the insolvent employer either hasn’t paid them their contractual notice pay in full or hasn’t given them full notice of their employment ending (where they work their notice period). Again this is claimable at their rate of pay (up to a maximum statutory rate of £450) but will be reduced by taxes and whatever money the employee goes on to earn during their notice period in new wages or from signing on.
• Redundancy Pay – Employees can claim this if they have worked for the insolvent Company for more than 2 years. It is calculated based on the employee’s age and length of service where between half a week’s pay and one and a half week’s pay is paid to the employee for every full year they have worked for the Company but is capped at 30 weeks. The weekly rate is as per their rate of pay (up to a maximum of £450).
What process doe employees follow to claim entitlements?
An employee of an insolvent company cannot claim and get paid the above entitlements unless the Company is placed into an insolvency process and the Insolvency Practitioner helps them submit claims to the government.
The claims submitted must be verified by additional forms which the Insolvency Practitioner submits, based on the Insolvent Company’s records, and if different, are usually paid out based on what the Insolvency Practitioner has stated.
The claims are usually paid out between 3 to 6 weeks from when submitted, which is at its earliest, the date of the appointment of the Insolvency Practitioner. Therefore, if the Company is going into a Creditors Voluntary Liquidation then you need to also factor in the lead time up until the appointment of the Insolvency Practitioner of approximately 1 month.
Can I get paid if I am a shareholder or director of the Company?
The short answer to this is YES, however The Insolvency Service Redundancy Payments Office, the government department responsible for considering and paying out employee claims, will have to establish whether that director/shareholder was in charge of the Company or whether they are classed as a standard employee. To do this, the main things they consider are the number of shares held, the number of Directors, whether they had a contract of employment, whether they agreed to receive a reduced salary when others didn’t, if the claimant worked regular hours, their rates of pay and their general duties and responsibilities.
Through our many years of submitting employee claims, we have become experts in ensuring that employees get paid. Therefore if you need further advice on this topic please feel free to call our free phone number on 0800 612 6197 for free initial advice.