Who Can Claim Redundancy If A Company Is Insolvent?

employee packs up belongings on desk into box

Finding out that the company you work for is insolvent is a very challenging time. Though there are some cases where jobs may be preserved, most staff will lose their jobs when an insolvent company enters into liquidation and this can cause sudden financial worry. Understanding who can claim redundancy if a company is insolvent is key to feeling in control in an otherwise difficult situation. 

Employees have a number of rights under insolvency which ensures they are treated fairly and can claim money that they are owed. The Insolvency Practitioner will work with employees and other relevant parties to ensure that they can claim redundancy when a company is made insolvent, providing they meet relevant eligibility criteria. 

Employee Redundancy

In normal circumstances, employees must be given suitable notice of redundancy. However, when a business suddenly ceases to trade due to Creditors Voluntary Liquidation or compulsory liquidation, notice is not possible and employees find their contracts terminated at short notice. At this point, employees can claim redundancy payments. 

When liquidation commences, creditors must be paid in a specific order determined by the Insolvency Act 1986. Employees count as a preferential creditor which means they are paid after secured creditors when business assets are sold. This means that employees can claim unpaid wages, holiday entitlement and pension contributions from the company should funds remain once secured creditors have been paid.

However, if the sale of business assets fails to cover employee claims then they have to make a claim through the Redundancy Payment Service (RPS) instead. The Insolvency Practitioner will guide employees throughout this process to ensure that they are doing the right thing and will help them lodge their claims for both wages and holiday entitlement as well as statutory redundancy payments. Should the employee meet the eligibility criteria, payments are then made from the National Insurance Fund (NIF).

Director Redundancy

Directors can also claim redundancy when a company is insolvent. Any director wishing to claim redundancy if a company is insolvent must also meet the criteria set out by the RPS. This means that they must be deemed as employees of the company and have received a regular salary. If a director has received only dividend payments, they will not be eligible to claim redundancy after liquidation from the RPS.

Worried About Your Company?

Here at My Liquidation, we understand that redundancy can be a difficult prospect with both emotional and financial implications for those affected. For this reason, our expert Insolvency Practitioners will always provide employees with clear and concise information that helps them understand their rights and how to lodge claims when they are dismissed from an insolvent company. 

If you are a director of an insolvent company and worried about the possibility of compulsory liquidation or wish to understand further how you can claim for redundancy, our team can also help. We will talk you through the options available to you, whether you wish to take steps to avoid liquidation, want to place your company into voluntary liquidation, or simply understand the rights of you and your employees. Don’t hesitate to contact us today for more information about your options and claiming redundancy if a company is insolvent.

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