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Supporting directors and employees during insolvency
When a business experiences financial difficulties, directors are often concerned about the impact on employees. Alongside managing creditor pressure and company finances they must also consider issues such as redundancy, unpaid wages and employee communication.
Employees are affected by insolvency more than any other group. Not only might they lose their jobs but without an income they could lose their homes and future security. Uncertainty around employment, wages and redundancy can create significant stress for both employees and directors.
Early planning and clear communication can help minimise distruption, ensure employees understand their rights and support a smoother transition if redundancies become necessary.
At McTear Williams & Wood we work with directors to manage employee related issues while also helping employees access the support and compensation provided by the Government available through the Redundancy Payments Service (RPS). In many situation, employees may be able to make claims through the RPS which is funded by the National Insurance Fund.
What can employees claim following redundancy?
Employees affected by insolvency may be entitled to claim certain payments from the RPS depending on their employment status, length of service and individual circumstances. Employees may be able to claim for:
- Redundancy pay
- Arrears of wages
- Holiday pay
- Statutory notice pay
- Outstanding pension contributions
- Statutory maternity pay
Director
- 01603 877542
- andrewmctear@mw-w.com
- Prospect House, Rouen Road, Norwich, NR1 1RE
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The exact amount employees can claim is subject to statutory limits and eligibility requirements. The statutory weekly cap is currently gross pay of £751 per week and this is reviewed and increased annually.
Redundancy pay
Employees with at least two year’s continuous service are entitled to statutory redundancy pay through the RPS. Redundancy payments are calculated based on the following and claims must usually be submitted within six months of dismissal:
- Length of service
- Age
- Average weekly earnings
- Statutory weekly limits
Arrears of wages and holiday pay
Employees may also be able to claim unpaid wages and accrued holiday pay owed before the insolvency date. The RPS can cover:
- Up to 8 weeks of unpaid wages
- Up to 6 weeks of accrued holiday pay
These payments remain subject to statutory caps and deductions for tax and National Insurance where applicable.
Notice pay claims
Where employees are dismissed as part of an insolvency process and don’t work their notice they are also entitled to claim statutory notice pay through the RPS. Notice pay is generally based on:
- Length of service
- Weekly pay
- Any earnings or benefits received during the notice period
Claims for notice pay are handled separately though on the RP2 claims process once the employee’s notice period has ended.
Support through the claims process
Once a formal insolvency process begins employees are provided with guidance on how to submit claims to the RPS. The process starts once the RPS issue the relevant case reference numbers and we gather the supporting information required. At McTear Williams & Wood our team helps ensure the process is as clear and straightforward as possible by:
- Providing guidance on RP1 and RP2 claims
- Assisting employees with supporting documentation
- Explaining claim eligibility and statutory limits
- Supporting communication throughout the process
The RPS will typically process claims within several weeks once all required information has been received. Statutory pay in lieu of notice is calculated once the notice period has ended.
Director redundancy claims
In certain circumstances directors are also eligible to make redundancy and employee-related claims, particularly where they have worked under a formal contract of employment. Director claims are often reviewed more closely by the RPS and require additional supporting documentation.
Many directors are unaware that they are entitled to redundancy related payments where they have worked under a genuine contract of employment and meet the relevant eligibility criteria. Claims are assessed individually and may require evidence of employment duties, PAYE records and regular remuneration. We support directors through this process.
What happens if the business is sold?
In some insolvency situations the business may be sold rather than closed completely. Where a business is sold as a going concern, employees usually transfer to the new employer under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).
Whether TUPE applies depends on the type of insolvency process and the circumstances of the sale. The rule of thumb is that sales of businesses in Administrations are subject to TUPE and sales of businesses in Liquidations are not. Directors and employees should always seek advice regarding their rights and obligations.
Support for directors and employees
Financial distress affects more than just the balance sheet. Employees, directors and their families can all be impacted when a company faces insolvency. Seeking advice early can help directors explore options to preserve jobs where possible, communicate effectively with employees and ensure any claims are handled correctly and efficiently.
Get in touch with our employee support team today for further advice.
How can we help - Book a free 1-2-1
If your company is struggling with unmanageable debts, decreased cashflow or concerns about about your company’s future, we can assess your situation and provide you with tailored solutions and options.
During your free initial advice meeting, we will discover a true picture of your company’s financial situation
and offer practical and expert guidance on your next steps.
Initial meetings can be held at our office or your premises and are completely confidential.
There is no charge for this meeting – charges only apply if and when terms of engagement have been agreed.
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FAQs
Yes. Employees with at least two years' continuous service are entitled to statutory redundancy pay through the Redundancy Payments Service (RPS), subject to eligibility requirements and statutory limits.
Timescales vary depending on the complexity of the claim and whether all required information has been provided. In many cases, claims are processed within several weeks once the insolvency practitioner has submitted the necessary details.
Generally yes. Directors who worked under a genuine contract of employment and carried out employee duties are eligible to make redundancy and other employee-related claims. Eligibility is assessed individually by the Redundancy Payments Service (RPS). The RPS starts from the position directors are not entitled. We disagree with the RPS and start from the position that directors are entitled - we take a glass half full approach.
BUSINESS RESCUE & INSOLVENCY SPECIALISTS
Download your free Directors' guide
This free, easy-to-read guide is designed to help directors whose company is in financial distress. It will assist directors to navigate around insolvency issues and avoid potential pitfalls, split over ten sections this guide walks you through the matters in a logical order you are
likely to need to consider.
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