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How company directors can look after their staff in liquidation

Staff Redundancy

If your company is going into liquidation, it will ultimately close down after all assets have been sold to repay creditors. The reality is that under these circumstances, your employees will lose their jobs and, as an employer, you have a number of legal duties towards them.

In our experience, the majority of company directors we advise are aware of this and wish to ‘do right’ by their staff.

As well as meeting these statutory obligations and providing the practical assistance they need, offering moral support will help your staff through this stressful time. It’s important to keep the channels of communication open, and ensure they understand their entitlements, how to claim them, and the likely timescale for payment.

Employee redundancy

Some staff members could already be aware that the business is struggling, and may have taken steps to look for alternative employment. Once you have notified your employees of the situation, under redundancy regulations they are entitled to ‘reasonable time off’ to look for other work or suitable training.

Of course it’s also worth remembering that you may be entitled to claim redundancy pay and other entitlements as a director. You can read more about this on our main Director Redundancy page.

Employees as preferential creditors

There is a defined ‘hierarchy’ for payment when a company is liquidated, and your employees will rank higher than unsecured creditors for arrears of wages and holiday pay up to certain limits. They will need to obtain a claim form from the liquidator, but in many cases there are simply insufficient funds to meet the full amount of each claim.

In these instances, your employees can request a Form RP1 from the Redundancy Payments Service (RPS), after which payments will be taken from the National Insurance Fund (NIF) - set up to meet social security needs, such as redundancy and the state pension.

Statutory redundancy rights and entitlements

To be eligible for redundancy pay, your employees must have worked continuously under a contract of employment for a minimum of two years. Payments depend on their age and length of employment (the maximum is 20 years), and are based on gross weekly wages:

  • Aged 18-22: half a week’s pay for each full year in employment
  • Aged 22-40: one week’s pay
  • Aged 41 and above: one and a half week’s pay

There is a cap on weekly pay of £489, and on the maximum amount of redundancy pay of £14,670. Other entitlements potentially include arrears of wages and holiday pay, and unpaid pension contributions.

Helping your employees

Providing clear information to your staff on how to claim redundancy pay, the amount they will receive, and how it could affect their pension/state benefits, will help them cope with a potentially complex situation.

But there are also other ways you can offer support in this situation:

  • Offering advice on job interview questions, application forms and CVs
  • Helping in their job search by contacting other suitable local employers
  • Providing guidance on how to search for jobs on the internet, and what potential employers might be looking for in a candidate
  • Giving them information about the local job centre and benefits office

Although an insolvency practitioner will be appointed to carry out the liquidation process and take over the company’s affairs, as a director you still need to provide moral and practical support to your employees.

To find out more about how you can help, and the liquidation process in general, call one of our experts at Redundancy Claim. We will provide all the information you need, and make sure you meet all your statutory obligations.

Our flowchart can help you understand whether you might qualify for director redundancy.
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