What to do if your Employer Becomes Insolvent

The most frightening redundancies are those where your employer goes bust completely. Often they come straight out of the blue, without advance warning of any kind. And naturally you’ll wonder whether you are going to get any of what you would normally have been entitled to during a redundancy, such as redundancy pay, pay in lieu of notice, perhaps even wages or salary you are still owed. Fortunately the answer is yes. You still do have some protections even if your employer is no longer in a position to pay you. The government steps in and offers a degree of support through the Insolvency Service.

Money You Can Claim from the Insolvency Service

Through the National Insurance Fund, the Insolvency Service will pay you the redundancy payment you would normally have been entitled to from your employer. For this, the basic rules on eligibility and amount are exactly the same as they would normally be for Statutory Redundancy Payments. If your contract of employment promised you more than the statutory minimum, you will not get that extra amount.

In all payments you receive from the Insolvency Service, there is an upper weekly pay limit. Currently this stands at £330 but, as this will be updated each year in line with inflation, you should check with the Insolvency Service to find out the latest value.

If you are still owed some normal pay from your employer at the time it becomes insolvent, the Insolvency Service can get it to you. Here, too, the maximum weekly limit applies and there is an additional limit of 8 weeks pay in total.

At the time you are made redundant, if, during the previous 12 months, you have accrued entitlement to paid holiday which you have not used, the Insolvency Service will also compensate you for that up to a limit of 6 weeks.

Pay In Lieu of Notice

Obviously, if your employer has gone bust, you won’t be getting any notice. Your employment terminates abruptly. The Insolvency Service will compensate you for this, however, paying out what you would have received as Pay In Lieu of Notice. Again, the rules on how much notice you are due are exactly the same as they would be in a normal redundancy.

Note that if you have income from another source during the notional notice period, for example if you start work in another job right after your first one ends, your income will be deducted from the amount you would have received from the Insolvency Service. Benefit payments you get, or could have got if you had applied for them, will also be deducted.

If You Are Owed More than The Insolvency Service Can Pay You

If your normal pay is more than the maximum weekly limit, you will be paid up to the limit by the Insolvency Service and can lodge a request as a creditor for whatever remains above the limit. This will be treated as one of the debts the business owes. The administrator appointed to oversee the insolvency will make a list of the company’s debts and will attempt to pay as many of them as possible by selling off whatever assets the company has. Usually, there are not enough assets to pay off all the debts. Some debts are given higher priority than others. Unpaid wages, for example, are considered preferential debts and will therefore be given a high priority. Realistically, however, there is a good chance that the company’s assets will not be sufficient to pay its debts in full, so you may get only a partial payment or even nothing at all.

How to Apply for Money from the Insolvency Service

The Insolvency Practitioner who handles your company’s redundancy should normally issue you with documents giving you information about the procedure. These should include the RP1 form required to apply for money your redundancy payment. Form RP2 is used to apply for compensatory notice pay.

Usually, the form should be submitted to one of the Insolvency Service’s local Redundancy Payments Offices. Sometimes it should be submitted to the Insolvency Practitioner instead.

Insolvency and Redundancy – Conclusion

As the article makes clear, there are comprehensive protections in place to make sure that employees do not lose out completely when their employer becomes insolvent. Unfortunately, the strict weekly limit on the compensation which is payable means that many people will still lose out to some degree.