In the Press

How do employees get redundancy when a company goes under

Whilst we always try to find a solution to the cash flow issues companies face, there are times when a company cannot be turned around and a form of insolvency is required, which could be liquidation or administration.  If the decision is made that the company needs to close though what happens to the employees, some of which may have large claims for redundancy and be owed pay?

If there are no funds available to continue to trade and if the employees have to be made redundant, the employees are left in a position where the company cannot pay them what they are due.  In most cases this is one of the primary concerns of directors.  Most directors we meet work daily with their employees and have done for many years.  They want to ensure that the employees receive at least some of the money they are owed and get some support from the insolvency firm to do so.

I recently read in the Basingstoke Gazette that employees of a large car dealership were struggling to receive the money that they were owed.  The company had entered into administration and 300 employees were immediately made redundant.

Unfortunately the message did not appear to have got through to all employees about how they could make claims for the money that they are owed.  This resulted in a stressful situation becoming even more so and ultimately to the employees approaching the local paper.

The employees are not simply left to wait for their money, there is assistance that can be given to assist the employees to get the money that they are owed.

The government set up the Redundancy Payments Office (RPO) many years ago to assist employees in this situation.  Employees make claims online to the government for money that they are owed for wages, holiday pay, redundancy pay and notice pay.

This allows the employees to receive the money that they are owed (in some cases slightly less as it is limited to the government statutory limit) within six weeks.  In most cases the  RPO will pay out in only a couple of weeks.  After paying out the RPO then become the creditor in the administration or liquidation.

employees redundancy following insolvency

In all cases we handle the employees are provided with a letter setting out how they make these claims, in nearly all cases we will meet with all of the employees and be available to help with queries as the employees make their claims for the money that they are owed.  This speeds up the process and hopefully allows the employees to be paid quickly and take away at least one of the worries they have.

For anyone, finding out that they have lost their job and that the company is being placed into administration or liquidation is distressing.  By being able to help to recover some of the money, the employees can instead focus on trying to find new employment.

Whilst this option is available if the worst should happen most employees do not find themselves in such a drastic position.  For many, a buyer can be found for all or part of the business.

Where a buyer can be found for the business the employees should usually transfer from the old company to the purchaser under TUPE (Transfer of Undertakings, Protection of Employees Regulations).  This legislation protects employees where a business is sold and treats the employment as having continuous term.

In these situations the RPO does not have to pay funds out and the claims in the insolvency are lower as there are no employee claims, which in some cases could be significant.  By selling a business as a going concern it will usually be worth more than if it is sold in parts, further increasing the pot that can be paid to creditors.

If the worst does happen as liquidators or administrators we can assist the employees to get their guaranteed entitlements, in most cases however this can be avoided and we are able to sell the business and get the best outcome for the creditors and the employees.

For more information on liquidation, read our useful guide ‘what is liquidation‘.