When a company goes into liquidation, as the company will cease to exist, its employees will be made redundant. But what does redundancy in liquidation mean in practical terms for a company’s employees and directors? We discuss some of the questions that we are most frequently asked here, such as how do employees make liquidation claims, and what are employees’ entitlements in liquidation.
The liquidator will inform the Redundancy Payments Service (RPS) of the redundancies either before the liquidation, or as soon as is practical afterwards.
The RPS will then provide the liquidator with a case reference, this is normally within two weeks. The liquidator will forward the case reference to employees, along with a fact sheet offering some guidance.
You will use this reference number to complete your redundancy claim online. The form should take approximately 30 minutes to complete.
Read our guide for more details on employees rights and claim amounts.
Your entitlements will depend upon your age and how long you have worked for the company, however generally speaking, you will likely be entitled to claim for redundancy pay, unpaid wages, any outstanding holiday pay, where applicable, notice pay and any unpaid pension contributions. Read our guide for more details on each.
This largely depends on how quickly the RPS processes the claims, but it aims to pay within 3 to 6 weeks of receiving the claim. Hopefully this will mean that your claim will be paid out within 8 weeks of the liquidation.
Unfortunately, you may not receive all the money owed to you. The national insurance fund has a limit on what it will pay out. As of 6th April 2020, this is limited to £538 per week (this figure does increase annually).
If you earn more than £538 per week, the Redundancy Payments Service will pay you £538 per week and the balance will need to be claimed in the liquidation.
For example, if you are owed 5 weeks’ wages and earn £600 per week:
TOTAL CLAIM: £600 x 5 weeks = £3,000
RPS Limit: £538 x 5 weeks = £2,690
This means you will receive £2,690 (before any tax and NI) and the remaining £310 will need to be claimed from the liquidation.
However, as your employer has gone into liquidation, it is often unlikely that the liquidator will be able to realise enough funds to pay all creditors in full. Therefore, if you are owed more money than the RPS can pay, it can be unlikely that you will receive all the money owed to you.
In this case, a week’s pay will be calculated by taking an average of the number of hours worked in each week for the 12 weeks before redundancy.
Unfortunately, if you have paid out for expenses that you were planning to claim back from your employer, such as petrol, this will not be paid by the RPS. These expenses will be an unsecured claim in the liquidation meaning that they are treated in the same way as other creditors.
As long as you were an employee of the company then you should be entitled to make a claim like any other employee. It is likely that as a director you will need to prove your status as an employee. Examples of proof are a contract of employment, and receiving pay under the PAYE scheme. Read more about director’s redundancy in liquidation.
If you have any more questions about redundancy in liquidation please contact one of our business rescue experts directly.