How Does Voluntary Liquidation Affect Employees in a Limited Company?
Unfortunately, one of the hardest hit of all the stakeholders in a Creditors’ Voluntary Liquidation is the company’s employees. For this reason, it’s essential directors consider their circumstances as much as their own. Clearly, no one wants their business to fail, but if you are left with little choice other than to pursue a voluntary liquidation, it’s important to know what company employees can expect from the procedure.
In most cases, the company will cease trading when, or shortly after, it enters into a CVL. At this point, all contracts of employment will be terminated. However, sometimes the liquidator will allow the business to continue trading and may retain some key members of staff.
Wrongful Dismissal Claims
If an employee is dismissed as soon as the liquidator is appointed, under the TUPE regulations (Transfer of Undertakings Protection of Employment), a claim for wrongful dismissal could be made if the following criteria apply:
- The dismissal has resulted in a loss for the employee
- The dismissal occurred without due notice according to the statutory minimum notice period required)
- The employee has been dismissed as a result of breach of contract
However, making a claim for wrongful dismissal could be counterproductive. If the claim is found to be valid, the amount awarded will be classed as an unsecured debt and the employee will have to wait in line with the other unsecured creditors for their money. That means, realistically, the employee will receive only a small amount or even no money at all.
The good news for employees is that there are other claims they can make if they have suffered a loss as a result of the liquidation. The liquidator is responsible for providing employees with the details of how to make a claim. All payments are processed by the Redundancy Payments Service (RPS) and are paid out of the National Insurance Fund (NIF). However, the RPS cannot process any claims until the meeting of creditors has been held and an insolvency practitioner has been appointed.
Claims can be made for:
- Statutory Redundancy Payment – subject to satisfying eligibility criteria
- Holiday pay – up to a maximum of 6 weeks
- Notice pay – compensatory pay for the statutory minimum notice period
- Arrears of wages – up to a maximum of 8 weeks
- A basic award ordered by an Employment Tribunal as a result of any unfair dismissal claim
As the amount that can be claimed from the NIF is capped, employees can choose to claim the remainder from their insolvent employer. However, given the poor state of the financial affairs of the business, employees are extremely unlikely to receive their payments in full as they will be treated in the same way as other creditors.
Anything else you’d like to know?
If you are considering a Creditors’ Voluntary Liquidation but are unsure of the impact on your employees, please call our team on 08000 746 757 or use the live chat function below.