Most company directors worst fear is not being able to pay their staff. As an employer, you have a lot of responsibility and a duty of care to your employees, but if your company is facing liquidation, a lot of the time there’s not an awful lot you can do.
However, you can help prepare your employees for the potential liquidation of your company, even if you know you won’t be able to help them financially. If you liquidate your company, all your employees will become unsecured creditors, which means that their financial needs, unfortunately, fall into second place behind other preferential and secured creditors.
In this event, you can direct them to the Redundancy Payment Service where they will be able to claim redundancy. Below you can find some top tips and advice on liquidating your company, redundancy and how you can help your employees.
Putting a company into liquidation – what you need to do
Often also referred to as ‘winding up your company’, putting your company into liquidation involves ceasing business trading.
When a company is liquidated, its assets are used to pay off any debts it has and then the remaining money leftover (if there is any) will go to shareholders. In order to access your company bank account, you will need to obtain a validation order.
There are three types of liquidation that your company might want to consider, including:
- Creditors’ voluntary liquidation – this happens when your company is unable to pay its debts and you involve your creditors when you liquidate it.
- Members’ voluntary liquidation – this type of liquidation occurs if your company is able to pay its debts but you still want to close it.
- Compulsory liquidation – if your company is unable to pay its debts, then you will have to apply to the courts to liquidate it.
What effect will liquidation have on my employees?
Once the wheels of liquidation are in motion and a liquidator has been appointed to wind up a company, the employees will be instantly dismissed. The payment of employees’ wages arrears and pro-rata holiday pay are next in line in terms of priority after secured creditors. However, if your company cannot afford to make these payments, employees are entitled to be paid by the Redundancy Payment Service.
Your employees are eligible to pursue a claim for any money that they’re entitled to at the time of the company’s liquidation. Whether that’s holiday pay, wage arrears or unfair dismissal claims, any employee has the right to try to obtain any money owed to them.
The majority of redundancy payout claims with regards to companies going into liquidation are not the liability of the company itself, but the responsibility of the Redundancy Payment Service.
How to claim for redundancy
If your employees are looking to make a claim for redundancy, they will have to meet certain criteria as set by the Redundancy Payment Service. The criteria that they need to meet in order to ensure that their claim is met and they receive the amount that their owed can be found briefly below:
- The employee must be owed money from the company that they worked for.
- The employee must have worked at the company for at least two years.
- The employee must have been working for at least 16 hours per week.
Once they have checked that they’ve met the criteria, the employee can then make a claim through the National Insurance Fund; this is where National Insurance Contributions are made.
The employee’s claim will be assessed by the appropriate person/people to ensure that their claims for redundancy pay are legitimate and the amount of money that they’re owed will be calculated based on several factors, including how long they worked for your company, their age and how much they were paid before your company went into liquidation.
What can employees claim for if they’re made redundant?
Employees are able to claim for several things if they’re made redundant, including:
- Redundancy pay.
- Payment in lieu of any notice period.
- Pro-rata holiday pay.
- Any previously unpaid wages.
For more information about redundancy pay see gov.uk https://www.gov.uk/redundancy-your-rights/redundancy-pay
Redundancy for directors
As well as helping and advising your employees with their redundancy pay, it’s also important to know that your directors are eligible for redundancy pay as well.
A director of your company could be eligible for redundancy pay if they were an employee of the company if they’ve worked at your company for at least two years and have completed a minimum of 16 hours a week and if they’ve taken home a monthly wage.
Unfair dismissal claims
Employees may be eligible to make an unfair dismissal claim if you dismissed them from your company as a result of liquidation and they received a significant loss with regards to their pay. Furthermore, if an employee was dismissed without being given the appropriate statutory notice period, then they can also choose to make an unfair dismissal claim against your company.
Further Reading On Liquidation and Limited Companies:
Some more great resources to help you manage your business:
- Do you need a Creditor’s Voluntary Liquidation?
- Do you need a Member’s Voluntary Liquidation?
- Do you need a Compulsory Liquidation?
- Do you need more info on how to liquidate your limited company?
- Do you need more info on liquidation and bounce-back loans?
