Sacked by the liquidator : so who will pay me what I am due ?

It is a fact of life that not all businesses are successful.? Some simply fade away, whereas others are subject to a formal insolvency process, which can happen for many reasons but the main one tends to be a lack of cash.?

Whether the liquidator is appointed by the board or a creditor, one of the first questions for him to address is whether the business should continue trading and, if so, on what basis.? For example, a hotel or leisure premises is often worth more when the liquidator is trying to sell it if it is trading, whereas a retail outlet or factory does not tend to collapse in value when the business closes. Thus, if a business is to maintain a trading activity in order to attract buyers, a fairly detailed calculation is required regarding how many staff are required to maintain the business, particularly if there are multiple locations and other requirements such as compliance with insurance regulations, health & safety considerations, and customer considerations.? That may provide a welcome, short term solution for those employees who are invited to remain with the business in the hope that a buyer will be found, but what about those who are dismissed at date of liquidation or shortly thereafter??

As you might imagine, there is a significant amount of information on the internet regarding redundancy payments but basically, as long as one is in full time employment there is a framework for determining the amount payable to employees for unpaid wages, notice pay, holiday pay, redundancy and pension deductions.? Much will turn upon how long a person has been with the insolvent employer and whether there is a signed contract of employment.? Indeed, despite the fact that employers are legally obliged to provide a contract of employment to each employee, it is surprising how many companies fail to do so.??

The Redundancy Payments Service “RPS” is a blessing for the vast majority of employees, because such government body pays employees what they are validly due, and then lodges a claim in the liquidation process for the sum paid. That is fair on the basis that many liquidations take a considerable period of time before cash is available to pay to creditors, and employees do not deserve to be waiting for a lengthy period of time to find out if there is enough cash to settle their statutory entitlements.?

Currently, the State will pay unpaid wages, holiday pay and redundancy up to a maximum of ￡700 per week ( reviewed annually ) with the maximum statutory redundancy payment being ￡21,000.? In other words, if a person earns less than that figure, the full amount is paid, whereas if a person earns more than ￡700 per week, the excess over this amount is dealt with as a claim against the liquidated estate, with consequent delay/risk in it being settled.?

As noted above, pension contributions sometimes form part of a claim when an employer has deducted pension contributions but failed to remit these to the pension provider e.g. due to lack of cash in the? struggle to pay bills.? The RPS will recognise a claim for unpaid contributions for the twelve month period ending on the date of formal insolvency.? If there are unpaid contributions for a longer period, they can be claimed against the liquidated estate but clearly, payment of these will again depend upon the availability of funds.

?Interestingly, the RPS has become increasingly aware of employees seeking to inflate their holiday pay entitlement by increasing the number of weeks’ holiday that they are due. This is why the RPS places reliance on the liquidator to verify claims from the company’s records.? Of course, it can sometimes transpire that the company’s record keeping has become unreliable as choppy financial waters are? encountered, which can mean that a sense of practicality is required.? For example, if there is no contract of employment the State would normally assume a standard four week holiday entitlement in a twelve month period, leaving the liquidator to ask employees who has been on holiday and when in order to try and establish a sensible figure.?

Although the RPS process is designed for online submissions and payments, there is nothing to stop anyone from contacting the RPS in order to ask questions, or to approach the liquidator for clarification of any issue.? After all, the process of redundancy and receiving payment through a formal insolvency process is generally a traumatic affair and it is not unreasonable for both the RPS and the liquidator’s office to provide relevant advice as required.?

The object of the exercise is to expedite employee claims so that they receive as much of their valid entitlements as soon as possible, firstly by using the RPS and then relying upon the liquidator to settle any shortfall if there is any cash available.

?The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of MHA (mha.co.uk) rather than those of the firm in general.???