So, your business is struggling, and you’re unable to pay your staff’s wages? Understandably, you’re worrying. In this blog, we’re answering the question, what can my employees claim if I liquidate my company?
We’ve received a number of phone calls over the last few weeks from directors whose businesses have become vastly insolvent. This generally means that they can’t afford to pay their debts when they fall due, their liabilities are worth more than their assets and creditor pressure is building. These directors are concerned that they won’t be able to make payroll at the end of the month.
What can employees claim if a business goes into liquidation?
If your employees have been with you for over two years, they are entitled to claim all statutory redundancy.
When you are becoming insolvent, you voluntarily appoint an insolvency practitioner. From the date that you officially enter liquidation, you’ll be able to get a case number, which you’ll then pass on to your staff.
With this case number, your staff can go on the Government website and make a claim for redundancy pay. The amount of redundancy pay they are entitled to depends on their age and time in service. In addition to this payment, they can also claim for unpaid wages. These claims will be checked with the insolvency practitioner so they can access this money. Employees will also get any holiday pay they are due pro rata.
Notice pay is another element that can be claimed for. This can only be claimed for when you have not given the employee the correct amount of notice for redundancy. These notice periods should be outlined in the employment contract and must be adhered to.
The employee claims process
All of these claims follow the same process. The employee makes the claim, which is then verified and paid out a few weeks later. There’s no way of knowing exactly when you’ll receive the money, as it depends on how busy the department is. In some cases, employees could be waiting four weeks to receive any payment.
We received a call not long ago from a director who was very worried as they were entering liquidation. This director owes around £5000 in pension contributions to the staff. The director was very concerned that they wouldn’t get their pension contributions due to liquidating. If you go into liquidation, the Redundancy Payments Office will top up the unpaid pension contributions. This is essentially another creditor of the company.
Important information regarding claims
Something important to note is that the Redundancy Payments Office will only step up and fill in the gaps for redundancy, holiday pay and notice pay if the company goes into voluntary liquidation.
If you dissolve the company, they won’t step in. Additionally, if your business is able to pay the redundancy entitlements, then you don’t need to go into liquidation.
If you try to strike the company off, you will not be able to rely on the Redundancy Payments Office to fill in the monetary gaps that your employees are entitled to.
Equally, if your company is wound up in a compulsory liquidation, it will just prolong the period of staff being able to make a claim.
The insolvency practitioner that you use should have someone in their office who can help and guide staff with employee redundancy.
We hope this blog has been useful and answered the question, what can my employees claim if I liquidate my company? Please get in touch with our friendly team if you have any questions on this.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
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