Redundancy During Insolvent Company Liquidation

September 23, 2022 / Business Insolvency

At the end of the liquidation process, insolvent companies will be wound up and cease to exist as commercial entities. While this has a wide range of consequences, one of the most important is the future of the company’s employees. Many will be without employment at this stage, entitling them to certain rights and benefits.

If you are the director of company going through a Creditors’ Voluntary Liquidation (CVL), you will need to understand your employees’ rights as they relate to this insolvency process.

In this article, Clarke Bell will discuss how redundancy fits into the insolvency process, your employees’ rights, and your obligations to them.

What makes an employee eligible for redundancy pay?

Not every employee will be entitled to redundancy pay, nor will every payment be identical. Eligibility for redundancy pay, and other payments, depends on how long an employee has worked at your company and their age.

Newly hired employees, for example, will not be entitled to redundancy pay in any form, once your company is liquidated. In order to be eligible for redundancy payments, employees must have worked at your company for a minimum of two consecutive years.

Once eligible, employees will receive their redundancy payments for each full year of employment in your company. The exact amount your employees will receive is dependent on the two aforementioned factors. The amount will be paid in weekly instalments. These instalments will fall into one of three categories:

  • Aged 18-21 – Employees in this age bracket will receive half a week’s pay.
  • Aged 22-40 – Employees in this age bracket will receive a full week’s pay.
  • Aged 41-55 – Employees in this age bracket will receive one and a half weeks’ pay.

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Redundancy payments during liquidation

Insolvent companies will be closed at the end of the liquidation process, making all employees in those companies redundant. This is the case regardless of whether directors opt for a voluntary liquidation or have a compulsory liquidation forced upon them. Simply put, employee redundancy is an unavoidable reality during insolvent company liquidations.

If your company is currently undergoing a liquidation, or you intend to do so in the future, your employees will be entitled to redundancy pay. At the end of a liquidation process, such as a Creditors’ Voluntary Liquidation (CVL), your company will have realised all its assets and emptied any and all company accounts. This money will first be used to satisfy your company’s obligations to outstanding creditors, with any remaining capital being distributed amongst shareholders. Out of this remaining capital, employees will be entitled to their redundancy pay.

However, it is not always the case that enough capital will remain in an insolvent company to pay every outstanding creditor, let alone make employee redundancy payments. In such a scenario, your employees will have to look elsewhere for their redundancy pay. The main alternative for employees to receive their redundancy pay is the Redundancy Payments Service (RPS). This service will allow your employees to claim not only their redundancy pay, but other entitlements too, assuming your company cannot provide them.

The payments will be made from the National Insurance Fund (NIF), though it is more limited than receiving redundancy payments from a company. The NIF will pay up to £571 per week over a maximum of 20 years. Employees will have to wait a while if they intend to make claims above this cap. While this cap might be an issue for some employees, it ensures they receive the financial support they are entitled to.

Clarke Bell can help you

If you are considering putting your company through the Creditors’ Voluntary Liquidation (CVL) process, let Clarke Bell help you.

We have more than 28 years of experience in helping companies with CVLs, and we can do the same for you…including helping with your company’s employees.

For a free, no-obligation consultation, contact us today and find out exactly what we can do for you.