Help for Directors

All businesses face the occasional financial crisis but when they become a critical problem you need to know exactly where you stand. In our help for directors section, you will find specific information for answering your questions around if you are insolvent, what you need to do if you are and how it will affect you.

Creditors Voluntary Liquidation

What is known as Creditors Voluntary Liquidation is the process that most businesses must go through if they are insolvent. It can be a difficult time for everyone involved, so we have created this special section of our site to give you the important facts about CVLs in a clear and down to earth way so you can see where you stand.

Members Voluntary Liquidation

This is when your company is still solvent, but you (and your fellow directors) decide it is time to call it a day and retire or move on to the next stage of your lives.  With an MVL, you will release the assets and use these funds to pay off the creditors before returning the remaining funds to the shareholders.

Redundancy in liquidation

Redundancy in liquidation

Redundancy is a sad but inevitable part of insolvency

If a company is facing insolvency, Directors will have many questions, one of which is how it will impact employees, their rights, and entitlements.

On this page, we want to give you a guide as to how this works and what employees can claim.

 

How does the process work?

When a company enters into an insolvency process, employees are entitled to claim monies owed to them by the Company from the Redundancy Payments Office (RPO).

The process is completed online, and the insolvency practitioner can provide details on how to apply, what information the employees will require, and a case reference number.

Once the employee completes the form online, the claim is processed by the RPO.  Payments are then made directly to the employee’s bank account.

Further details can be found by clicking here 

 

What can employees claim?

There are a number of items that can be claimed as follows:

 

Wages – Arrears of Pay

An employee can claim up to 8 weeks arrears of pay, based on their weekly salary rate. There is a maximum rate which is £538 per week. Tax and national insurance will be deducted before the payment is made.

Holiday Pay

An employee can claim holiday pay whether this is holiday days not taken or holiday taken but not paid. So, for example, if you are 6 months through your holiday year you can claim half of your holiday entitlement less any days already taken. Holiday pay can be for up to 6 weeks, again capped at £538 per week, and tax and national insurance is deducted.

Redundancy Pay

An employee can claim for redundancy if they have worked for the Company for more than 2 years. The amount that can be claimed depends on the employee’s length of service and age.

Unlike wages and holiday pay, this is paid tax-free.

Pay in Lieu of Notice.

If an ongoing business makes an employee redundant then that employee would be given notice of the redundancy and continue to receive wages etc during that period. Often in a liquidation process, it is not possible to give this notice period.

Therefore, employees are entitled to claim their notice pay from the RPO. It is based on the number of year’s service, 1 week per year up to a maximum of 12 weeks.

However, unlike the other claims, this claim is limited by what an employee does during the notice period. So, for example, if the employee claims benefits, this will be deducted from their notice pay claim. Employees should be aware that if they do not claim benefits but were entitled to do so, then this can be deducted anyway. Next, if the employee starts a new job during the notice period, that income is also deducted from the notice pay claim. Once this has been calculated the claim is also limited to a maximum of £538 per week and is subject to tax and national insurance.

Unpaid Pension Contributions

If the Company stopped making payments into an occupational pension scheme, the RPO will pay any money deducted from wages for this purpose, but not actually paid into the scheme. The amount is limited to 12 months prior to the start of the liquidation.

This will be paid directly to the pension provider.

 

Statutory Rights v Contractual Rights.

All employees will have a contract of employment that will detail their rights. The items above are subject to various restrictions. Therefore, it is not uncommon that an employee has rights that are not covered by the RPO scheme.

For example, if a contract of employment provides a 3 months’ notice period but the employee has only been employed by the business for 4 years, the employee will only receive 4 weeks’ notice from the RPO. The balance of 8 weeks is a claim against the Company and any further payment will depend on whether the Company’s assets are sufficient to pay a dividend to creditors. Clearly, because the Company is insolvent, it is likely that any dividend payments are likely to be low.

If you still have questions about your employees’ claims, please feel free to give us a call or visit the government website highlighted above.

 

Beware! We have seen various sites which claim they can help employees and directors submit their claims to the RPO. The process is designed to allow anybody to submit the claim on their own and so paying a fee or commission to a third party should never be necessary.

 

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Find out more about our insolvency, liquidation or recovery service.  Learn how we can support you with clear, straightforward and empathetic guidance and support.

Call us on 0116 2967507 (Leicester), 01926 969000 (Warwick), 02476 0179639 (Coventry) or 01604 263179 (Northampton), or email us on info@smartbusinessrecovery.co.uk