Can Employees issue a Winding Up Petition for unpaid Wages, or Contributions?

A winding up petition is the toughest approach that an employee can take against an insolvent employer and is frequently the last resort for frustrated employees trying to recoup unpaid wages, unpaid contributions to occupational pension schemes, etc., once they have tried all other avenues to get paid. Employees can serve a winding up petition against their employer if they are owed £750 or more and can show the Court that their former company cannot pay its debts as they fall due or its liabilities exceed the total value of its assets. 

If the winding up petition isn’t disputed, adjourned or paid by the employer, the Court grants a winding up order to force the company into compulsory liquidation. At the same hearing, the Court appoints an official receiver or liquidator to sell the company’s assets and to distribute the proceeds fairly amongst creditors once the fees, charges and additional expenses of the liquidation have been deducted.

Distribution of Proceeds

Typically there isn’t enough money to pay everyone when the assets are sold. The liquidator is under a duty to act in the best interests of all creditors whether they are banks, employees or suppliers. A strict hierarchy or order of priority has been established in relation to how the proceeds are distributed. Therefore, the higher a creditor’s position in the hierarchy, the more likely they are to get paid.

The liquidator will distribute any proceeds from the sale of the assets to secured and unsecured creditors in the following order once the fees and charges of the liquidation have been deducted:

  1. Secured creditors, such as banks have security registered at Companies House. They have a fixed charge over an asset
  2. Preferential creditors like employees for arrears of wages, accrued holiday pay, unpaid contributions to pension schemes.
  3. Any secured creditor holding a floating charge over an asset
  4. All unsecured creditors, such as HMRC, suppliers, contractors and customers
  5. Any interest payable on debts
  6. Shareholders.

Employees have preferential status and rank ahead of all other creditors when the liquidator distributes the proceeds of the asset sale or in insolvency terms ‘when realisations are achieved from assets’, but only when no fixed charge is registered.

When a Petition has Already been Served

If a winding up petition has already been presented by a creditor and is successful, the Court will grant a winding up order to wind up or close down the company. It is also worth noting an employee could use the same petition already served eve where the petitioning creditor debt has been paid.

Once the official receiver has been appointed, it is likely that employees will be owed money. In this situation, an employee should register as a creditor with the liquidator if the debt is not covered by the National Insurance Fund (NIF) or claim from the NIF through the liquidator.

How does a Winding Up Petition Affect an Employee’s Rights?

Insolvency can come suddenly, and frequently employees have little idea about the financial strain their employer has been under. An insolvent company can be forced into liquidation through the Courts by a disgruntled creditor using the process as a last resort to get paid. If the winding-up petition isn’t disputed, adjourned or paid by the company, the Court grants a winding-up order and an official receiver (OR) is appointed to sell the company’s assets. The cash proceeds from the sale are then used to settle the company’s debts. The OR winds up the insolvent company or a private licensed insolvency practitioner (IP) is engaged to carry out this duty.

Typically, there isn’t enough money to pay everyone. The liquidator acts in the interests of the creditors, and it’s his or her responsibility to maximise returns to them whether they are banks, employees or suppliers. To assist with this, there is a strict hierarchy or order of priority about how the proceeds are distributed. Therefore, the lower a creditor’s position in the hierarchy, the less likely they will be paid.

Employee Claims

Employees should register their claim in writing through the liquidator and provide supporting evidence where necessary. Staff have to complete a proof of debt form and can either choose to do this individually or collectively. The later would involve appointing one or more employee representatives and filing just one proof of the debt. The liquidator, in turn, will examine the proof of debt and decide whether to admit or reject part or whole of the claim. It’s essential that employees keep hold of their employment records, such as contracts, company letters, salary slips, leave records, etc., as these may be required by the liquidator to support their claims.

Preferential Debt

Preferential creditors are high up in the pecking order though still below secured creditors, such as banks. Salary, sick pay, overtime and commission are classed as preferential debt and as such employees are entitled to a maximum of £800 in outstanding salary for the four months before the liquidation. Accrued holiday pay is also classed as preferential debt yet unlike salary; it doesn’t have a cap.

The National Insurance Fund (NIF)

Ordinary creditors are amongst the last to get paid the money they are owed and may have to make a claim on the NIF. This fund covers payments, such as redundancy, salary and holiday pay that haven’t been recouped from the sale of the company’s assets. Employees should request a claim form from the liquidator for any outstanding payments from the fund.

Claims on the fund for redundancy pay should be made via the Redundancy Payment Service (RPS). A claim is only accepted when an employee has worked continuously for the company for two years or more. The amount due is based on the age and length of service of the employee.

Department of Work and Pensions (DWP) & HMRC

Employees can claim outstanding statutory sick pay through the Department of Work and Pensions (DWP). Claims should be made via HMRC for maternity, paternity or adoption pay. Employees may not get everything that their employer owes them, but they should still try.

Concerned Your Employer is Insolvent?

If you believe that your employer is insolvent and cannot afford to pay your wages, contact us now to find out how you should proceed. Please call 08000 746 757 or email info@companydebt.com for confidential and free advice from one of our professional advisers. 

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