When a business goes into liquidation, unfortunately all members of staff lose their jobs. The business closes down and is struck permanently from the Register of Companies at Companies House.
But how do the company’s employees obtain their redundancy pay and other statutory entitlements if their employer has had to enter insolvent liquidation? Here are two ways that staff redundancy pay can be covered in this situation?
Business liquidation involves repaying creditors in a statutory order of priority, using the funds generated from an asset sale. If the sale of business assets doesn’t cover the redundancy payments, employees can make a claim through the Redundancy Payment Service (RPS).
The liquidator will provide them with the necessary claim form, offer advice on eligibility, and insight into the process/ timescale for receiving payments. Form RP1 is used to claim redundancy payments, and should be submitted within six months of redundancy.
This process applies whether the liquidation was compulsory or voluntary, as the ultimate outcome is the same – the business closes down with the loss of all jobs. The National Insurance Fund (NIF) holds the monies used to make statutory payments, such as redundancy and the state pension.
A statutory hierarchy exists in relation to payments made in corporate liquidation. This means that members of staff may be able to access some payments without making a claim on the National Insurance Fund.
If the company is able to make any redundancy payments from the sale of assets, employees will be regarded as preferential creditors for some payments. These include unpaid wages and arrears of holiday pay up to set limits, and unpaid pension contributions.
It’s a little known fact that company directors can claim redundancy pay when their business is liquidated, if they meet the eligibility criteria. The payments are also made from the National Insurance Fund, via the Redundancy Payment Service.
Directors must be regarded as employees of the company to be eligible, and have received a regular salary under PAYE rather than only dividend payments. So how much might employees/directors be entitled to following redundancy?
The amount of redundancy pay depends on an employee’s age, length of service, and final wage, as follows:
Length of service is currently capped at 12 years, and weekly pay at £544 for redundancies that occurred on or after 6th April 2021. The amount of statutory redundancy pay individuals can receive is also limited to £16,320 from this date.
Employees must have worked for the company for two continuous years under a contract of employment to be eligible for redundancy payments. For directors to be regarded as employees, and so entitled to claim redundancy, they must also:
If you would like more information on who pays for staff redundancy when a business goes into liquidation, please contact one of the team at UK Liquidators. We can explain the process further, and provide the professional support you need. We also offer same-day consultations free-of-charge, and operate a broad network of offices around the UK.
If you are considering liquidation for your limited company, taking advice from a licensed insolvency practitioner can help you understand your options.
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