What Happens to Employees in Liquidation?
When a limited company goes into liquidation, all employees will lose their jobs immediately. Liquidation, by definition, means the permanent closure of an insolvent limited company.
For employees, there will be the chance to recoup money owed up to certain statutory limits.
Read our complete guide below to employee rights and claims during the liquidation process.
- What Happens to Employees When a Company is Liquidated?
- Do Employees Get Paid if a Company Goes into Liquidation?
- What Rights Do Employees Have in Insolvent Liquidation?
- How Can Employees Process Redundancy Claims During Liquidation?
- What Entitlements Can Employees Claim for as Preferential Creditors in Liquidation?
- What Entitlements Can Employees Claim from National Insurance Fund (NIF) in Liquidation?
What Happens to Employees When a Company is Liquidated?
When a company is liquidated, all of its assets are sold off to pay back its creditors. This includes the company’s employees, who are considered to be unsecured creditors.
Unsecured creditors are paid after secured creditors, such as banks and other lenders who have a charge on the company’s assets. This means that employees may not receive all of the money they are owed, or even any of it, if there is not enough money to pay all of the company’s debts.
Employees who are made redundant as a result of liquidation are entitled to statutory redundancy pay, which is calculated based on their age, length of service, and salary. They may also be entitled to other payments, such as unpaid wages, holiday pay, and notice pay.
Employees can make a claim for redundancy pay and other payments from the Redundancy Payments Service (RPS) if their employer is unable to pay them. The RPS is a government-funded scheme that provides financial assistance to employees who have been made redundant.
In addition to statutory redundancy pay, employees who are made redundant as a result of liquidation may also be eligible for other benefits, such as unemployment benefits and jobseeker’s allowance.
It is important to note that liquidation can be a very stressful and upsetting time for employees. It is important to seek advice and support from friends, family, and professional organizations during this time.
Do Employees Get Paid if a Company Goes into Liquidation?
Employees may or may not get paid if a company goes into liquidation. Employees are considered to be unsecured creditors, meaning that they are paid after secured creditors, such as banks and other lenders who have a charge on the company’s assets. This means that employees may not receive all of the money they are owed, or even any of it, if there is not enough money to pay all of the company’s debts.
Employees who are made redundant as a result of liquidation are entitled to statutory redundancy pay, which is calculated based on their age, length of service, and salary. They may also be entitled to other payments, such as unpaid wages, holiday pay, and notice pay.
Employees can make a claim for redundancy pay and other payments from the Redundancy Payments Service (RPS) if their employer is unable to pay them. The RPS is a government-funded scheme that provides financial assistance to employees who have been made redundant.
In addition to statutory redundancy pay, employees who are made redundant as a result of liquidation may also be eligible for other benefits, such as unemployment benefits and jobseeker’s allowance.
If you are an employee of a company that is going into liquidation, it is important to contact the liquidator as soon as possible to discuss your rights and options. You may also want to seek advice and support from trade unions and other employee organizations.
What Rights Do Employees Have in Insolvent Liquidation?
Employees have certain rights when their employer is insolvent and enters liquidation. These rights include:
- To receive unpaid wages and holiday pay. Employees are entitled to receive any unpaid wages and holiday pay that they are owed when a company is liquidated. However, employees are only entitled to payments outlined in their employment contract.
- To receive statutory redundancy pay. Employees who are made redundant as a result of liquidation are entitled to statutory redundancy pay, which is calculated based on their age, length of service, and salary.
- To claim for redundancy pay and other payments from the Redundancy Payments Service (RPS). Employees can make a claim for redundancy pay and other payments from the Redundancy Payments Service (RPS) if their employer is unable to pay them.
- To be eligible for other benefits, such as unemployment benefits and jobseeker’s allowance. In addition to statutory redundancy pay, employees who are made redundant as a result of liquidation may also be eligible for other benefits, such as unemployment benefits and jobseeker’s allowance.
To exercise their rights, employees should contact the liquidator of the company. The liquidator is responsible for selling off the company’s assets and distributing the proceeds to the creditors. Employees can also seek advice and support from trade unions and other employee organizations.
» MORE Read our full article on the Role of a Liquidator in the Insolvency Process?
How Can Employees Process Redundancy Claims During Liquidation?
As unsecured creditors during liquidation, employees will receive updates and communication from the liquidator assigned to the case.
At the beginning of the process, the liquidator will compile a statement of affairs document detailing the company’s financial position, including what payments may be forthcoming to creditors. As a result, you should find out fairly early on in the process if you are likely to get paid what you are owed.
The liquidator is responsible for providing employees with the details of how to make a claim. Employees will be provided with a dedicated reference number (called a Case Reference or CN) that you can use for your claim.
The liquidator will also send you an RP1 Fact Sheet explaining how payments processed by the Redundancy Payments Service (RPS) are paid out of the National Insurance Fund (NIF).
To process a redundancy claim during liquidation, employees should follow these steps:
- Contact the liquidator to obtain a CN number.
- Complete the RP1 form and submit it to the RPS.
- Provide the RPS with any supporting documentation, such as your employment contract and pay slips.
- Wait for the RPS to process your claim and issue payment.
What Entitlements Can Employees Claim for as Preferential Creditors in Liquidation?
Employees can claim for the following as a preferential creditor.
| Entitlement | Criteria | Preferential Creditor |
|---|---|---|
| Outstanding Salary | for up to 4 months, to a maximum of £800 in total | ✔ |
| Holiday pay | up to a maximum of 6 weeks | ✔ |
| Occupational Pension Payments | up to 4 months employee contributions | ✔ |
What Entitlements Can Employees Claim from National Insurance Fund (NIF) in Liquidation?
Employees who are owed money that is not paid in full from the sale of company assets, or which exceeds the limits available as preferential creditors, can claim from the National Insurance Fund (NIF).
The NIF covers the following entitlements:
- Unpaid wages (up to 8 weeks, capped at £571 per week)
- Holiday pay
- Statutory notice pay
- Pension contributions
Employees must have been employed for at least 2 full years before the insolvency to be eligible to claim from the NIF.
To claim from the NIF, employees must complete an RP1 form and submit it to the Redundancy Payments Service (RPS). The RPS will process the claim and issue payment if the employee is eligible.
Here are some additional tips for employees claiming from the NIF in liquidation:
- Keep a record of all communication you have with the liquidator and the RPS.
- Be aware of the deadlines for submitting your claim.
- If you are unable to complete the RP1 form yourself, seek help from a friend, family member, or professional organization.
- Be patient and persistent. The claims process can be complex and time-consuming, but it is important to follow through to ensure that you receive the payments you are owed.
Example:
An employee is owed £10,000 in unpaid wages. The company enters liquidation, and the liquidator is able to sell the company’s assets and pay £5,000 to the employee. The employee can then claim the remaining £5,000 from the NIF.
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.
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 0800 074 6757 or use the live chat function below.
