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What to do if your Employer Becomes Insolvent

By: Paul Geraghty - Updated: 1 Jul 2017 | comments*Discuss
 
Employer Insolvent Company Redundancy

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.

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[Add a Comment]
@Brewer - that's the thing an employer can go into administration and wipe off all the old debts and then start afresh as if nothing happened. Great for them but not for the employees and there is nothing you can do :(
Ol - 3-Jul-17 @ 3:17 PM
The company I worked for went into a voluntary agreement of some kind early last year.We were then all made redundant later that year.The insolvency practitioner said they couldn't pay any of us our November wages (even though we were all still working the entire month).We were told there was no more work in December. They only money any of us received was a small redundancy payment after applying through the gov.uk website.How do we go about claiming these unpaid wages?The boss instantly re-opened a new company using all the equipment from the previous company.
Brewer - 1-Jul-17 @ 4:41 PM
Hello our business ceased trading at the end of last month and the Creditors meeting is taking place later this month. I was on a contract with a 6 month notice period.am I able to claim this period as a claim against the business and be classed as a creditor? thanks
CJ - 17-Apr-17 @ 7:23 PM
I was made redundant in 2012 , laid off on friday 13th july after 20 years I managed to get my redundancy pay from the National Insurance service however they would not pay me the Pay in lieu of notice or Holiday pay . I notice in your article here you say .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. Is this new and if so is it applicable retrospectively.
Mac - 3-Apr-17 @ 4:59 PM
Luke - Your Question:
Hi,So unfortunately on Friday I was told the company I work for has 'gone under' which explained the reason I wasn't paid my weekly wages on that day. Now obviously I'm left without that wage, this Fridays pay is due also and an unknown amount in my 'holiday pot' as it's growing ever difficult to find out more information of the closing of the company and any advice and answers about my money I haven't a clue how to go about things. Or what happens next. Few of my friends from the same work place are saying we will get it back in a few weeks, some saying we won't be getting any at all. If you can shed any light on this matter it would be really helpful.Thank you

Our Response:
I can only direct you to the gov.uk site here. I hope this helps answer your questions.
RedundancyExpert - 21-Mar-17 @ 10:58 AM
Hi, So unfortunately on Friday I was told the company I work for has 'gone under' which explained the reason I wasn't paid my weekly wages on that day. Now obviously I'm left without that wage, this Fridays pay is due also and an unknown amount in my 'holiday pot' as it's growing ever difficult to find out more information of the closing of the company and any advice and answers about my money I haven't a clue how to go about things. Or what happens next. Few of my friends from the same work place are saying we will get it back in a few weeks, some saying we won't be getting any at all. If you can shed any light on this matter it would be really helpful. Thank you
Luke - 20-Mar-17 @ 11:30 AM
In 2013 I was payed through the insolvency agency now I'm being sent a tax bill I worked on a paye basis the insolvency company stopped all taxes at 20 percent so why am I being pursued for the tax
Nellsta - 15-Feb-17 @ 12:34 AM
I hurt myself at work and the company has admitted liability,but has gone bankrupt ,it's over one hundred thousand pounds where do I stand ?
Ant - 28-Sep-16 @ 7:23 PM
One of the biggest moans that I hear about the payment of redundancy, payment in lieu, of notice, unpaid wages and lost holiday pay is the length of time it takes for these payments to be made If this is a valid gripe, what is the reason?
disinfectant - 9-Sep-16 @ 7:01 PM
I am not entitled to any benefits.will I be entilted to all of my statutory notice pay from the Insolvency dept?
Dawnie - 1-Sep-16 @ 11:32 PM
Hello there,the company that I was working for has been liquidated and I filled in an employees claim form to claim my outstanding monies,since that month I haven't received anything from the insolvency about my claim.What is the next step?because its a while wait,without UIF and Provident fund. THANK YOU.
Eddie - 1-Sep-16 @ 2:28 PM
I have worked for a company for 6 months, and I had booked a holiday. I have just been told I am being made redundant and they are not going to pay me for the week I had booked for a holiday. I know I haven't worked with them for long but is this right? Can they deduct a week that I booked from my redundancy pay?
Seb - 17-Aug-16 @ 5:07 PM
Hi i worked for a company for 32 years and was made redundant. Had amount sorted out through acas and an employment judge but I have had no money as yet, now I understand that they are going into liquidation what should be my next step please.
Drinky - 7-Jul-16 @ 10:00 PM
Ant - Your Question:
I was self employed for a company that went into liquidation in January this year I'm owed £1500 in wages is there anyway I can sort this?

Our Response:
Please see gov.uk link here which will advise you further.
RedundancyExpert - 22-Jun-16 @ 1:56 PM
I was self employed for a company that went into liquidation in January this year I'm owed £1500 in wages is there anyway I can sort this?
Ant - 21-Jun-16 @ 6:37 PM
I lost job when l pregnant l win case in tribunal myemployer naw.its insolvent what l can do now?
Ama21 - 18-Apr-16 @ 11:24 AM
i am a working company director of a company that has been declared bankrupt how do i claim redundancy and unpaid wages
colly - 21-Jan-16 @ 4:12 PM
Lady457 - Your Question:
I recently left my job to start a new one and have been fighting my former employer for my holiday pay as it is a substantial amount as I was on materniy and acrued them while I was off. However the businesd has just closed down is there anyway of me recieving that money as I really need it?

Our Response:
I am sorry to hear this. Please see link here which should help you further.
RedundancyExpert - 3-Dec-15 @ 9:49 AM
I recently left my job to start a new one and have been fighting my former employer for my holiday pay as it is a substantial amount as i was on materniy and acrued them while i was off.However the businesd has just closed down is there anyway of me recieving that money as i really need it?
Lady457 - 2-Dec-15 @ 9:19 AM
My son 16 got a job as a casual worker in a cafe and worked over the summer. He had a casual contract and was to be paid into his bank. He did not get paid. The assistant manager chased up his wages numerously with the owner who rarely came into the cafe. He still did not get paid he was told he would be and not to worry. A month later still no wages and was informed by the assistant manager that ther owner/employer had been to the cafe closed up and told everyone that he was not opening again they was all out of a job but would be paid to that date 3 weeks on no one has. How does my son get paid?
Paula - 11-Oct-15 @ 9:09 AM
Hi, I wonder if anyone could offer any advice , I have broken the info into a timeline for ease of reading: jan 2015, company enters into a CVA agreement with creditors (at no point are employees made aware that this means the company is legally insolvent). May 20 2015- company officially appoints administrators to run the company. All staff are made redundant with immediate effect. May 23 2015 Monthly pay is due, no employees receive this payment. June 2015. Redundancy forms completed and sent off to insolvency service (govt). Receive letter back saying redundancy and notice will be honoured, but due to CVA no wages are due from NIF. July 2015. 8 weeks after made redundant, receive a proof of debt from administrators to send back to them. My questions are: 1 am I a preferred creditor due to being an employee? 2 can I claim unfair dismissal and or a compensatory award for no consultation? Any advice welcome, thanks rob
RH1982 - 14-Jul-15 @ 6:18 PM
I was told the cafe I worked for wasbankrupt, so myself and the other employees were being made redundant and would have to wait to recieve our wages. Two months later still not recieved wages owed and the cafe is still open with the same owner, who also has two other buisnesses a print shop and a clothes shop. How do we get the wages owed for some of the staff its two months wages so over £2000
Gems - 14-Jul-15 @ 4:26 AM
@mandy - if you were legally employed by this company and have a contract etc, I think in this case you might want to give ACAS a call in order to talk to someone directly to see why this might have happened and what your next course of action should be. You can do so via the link here. I hope this helps.
RedundancyExpert - 9-Jun-15 @ 12:58 PM
the company I worked for went into liquidation . I filled in rp1 form and sent off to liquidator . Form forwarded to insolvency conpany and I have just received a letter from the insolvency to say unable to pay as liquidators not verified my employment . I have been with company for 10 years . Other staff have had confirmation from insolvency saying they getting paid ?
mandy - 7-Jun-15 @ 6:41 PM
I am 31 weeks pregnant during my sick leave. I was planning to start my maternity leave in December however it looks that company I work for will not be treading until then. Does anyone know what rights do I get if they go in to administration?
Mags - 25-Oct-14 @ 5:40 PM
I am a teacher who has been made redundant by an independent school which has gone into administration. They closed on the last day of the school year without notice. I have filled in the form RP1 and I said that I had no accrued holiday. I am now wondering if that was the right thing to say. Teachers have no say in when they take holiday, so I wasn't 'owed' any untaken holiday up to the end of term, but of course I was supposed to be paid throughout the summer (up until the end of August), and I won't get that now. Even worse, I have booked a holiday away, and can't get jobseekers allowance for the period that I am away. I am waiting for my RP2. Should I have said that I do have accrued holiday? If so, can I approach the administrators and say that I would like to revise an answer on the RP1? Any advice appreciated!
Mike - 18-Aug-14 @ 9:57 AM
My last day of working was 12.07.14.On returning to work on the Tuesday my place of work was locked.During that week the place was emptied due to non payment of rent.I have now had to claim JSA, but as yet don't think a liquidator has been appointed.If the building is empty surely there is no assets for the liquidator to assess a figure.If this is the case will it affect where we apply for redundancy payment.Also I am sure for at least a couple of weeks we were technically still employed and therefore should have received wages.This is now becoming frustrating, and on top of that I now learn any JSA I receive will be deducted??.I need answers and don't know what to do next.
twigs - 2-Aug-14 @ 2:43 PM
I am a passenger assistant for a taxi company I do 25 hrs a week and just do the one run everyday for the same client which is sub contracted from the council. We have now been told that the company is folding and we will be laid off but have the choice to be re instated as self employed for the same job as the company will be opening up under three different companies. I am at the moment off sick as iv damaged my hip with all the traveling and I don't want to go self employed do I have any rights
Clare - 16-Jul-13 @ 11:37 AM
I worked for a company for 4 years, at the time I was made redundant the company was in a 90 day consultation period. We were assured by senior management that nobody would be made redundant before the end of the consultation period on 06/06/13. However when I went in at the start of my shift on 19/04/13 I was told the company had gone into liquidation with the loss of 600 jobs, that they were unable to pay me for hours already worked, redundancy pay, notice in lieu pay or holiday pay, we were simply told to go home, I have already filled out form RP1, I don't know how to get form RP2? Also am I entitled to claim money from the date I was made redundant to the end of the consultation period? this would be 19/04/13 - 06/06/13 this equates to 35 working days or 7 full shifts, could you please advise me of my rights & all other relevant information please?
potamus - 11-May-13 @ 9:42 PM
The company I worked for went into liquidation on 19/04/13 with the loss of 600 jobs, we were all sent home, at this time however the company was in a 90 day consultation period due to end on 06/06/13 I worked there for 4 years. We were told they were unable to pay us for hours already worked, notice in lieu pay, redundancy pay or holiday pay. I have already filled out form RP1 & am awaiting form RP2, senior management told us no one would be made redundant before the end of the consultation period, am I entitled to claim money from the date I was made redundant to the end of the consultation period? 19/04/13 - 06/06/13 this equates to 35 days or 7 weeks.
potamus - 11-May-13 @ 9:34 PM
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