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Understanding TUPE and redundancy pay for employees following insolvency

When a company becomes insolvent, directors often worry about the fate of their employees. Despite insolvency, it’s not guaranteed that the business will shut down, and safeguards exist to protect employees.

If the business is sold as a going concern, the Transfer of Undertakings (Protection of Employment) Regulations, 2006 (TUPE) safeguards employment contract terms and conditions.

Furthermore, in certain situations, statutory employment-related payments may receive ‘preferential’ status if the company undergoes liquidation, and there are adequate funds from asset sales to cover these claims.

 

Dealing with Employee Redundancy

If the company goes out of business, all jobs will be lost, but workers can ask for statutory payments like overdue wages and unpaid holiday pay. Some staff members might also qualify for redundancy pay.

As we mentioned before, when there’s enough money from selling company assets, claims will be paid. In this situation, employees are seen as ‘preferential’ creditors, ranking higher than some others owed money by the company.

However, there are limits to what can be claimed as a preferential creditor:

  • Certain occupational pension contributions
  • Unpaid salary for the four months before insolvency
  • Outstanding holiday pay for up to six weeks

Any shortfall in these payments can be claimed from the National Insurance Fund (NIF).

 

Employees’ rights to claim redundancy pay

If your workers have been under an employment contract for a constant two-year stretch or more, they might qualify for redundancy. The same goes for you as a director if you can prove your status as an employee.

Redundancy pay is worked out based on age, service duration (up to 20 years), and weekly wage (currently capped at £525). Your employees need to claim from the company within six months of losing their job. If the company can’t pay, they can claim redundancy pay from the National Insurance Fund using form RP1.

 

Arguing from the National Insurance Fund (NIF)

The National Insurance Fund is funded by employer, employee, and self-employed NI contributions. 

If there’s not enough money for the liquidator to cover claims, employees can use form RP1 to claim from the NIF for:

  • Redundancy pay
  • Payment instead of notice
  • Up to eight weeks of overdue wages
  • Up to six weeks of unpaid holiday pay
  • Some outstanding pension contributions
  •  

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A few workers may retain their job

If the company is considered viable for the long term, even though it’s currently insolvent, there’s a chance your employees could keep their jobs. If a Company Voluntary Arrangement (CVA) is suitable, for instance, the company might be reorganised to avoid job losses.

Company administration is another formal insolvency procedure where jobs may be saved, depending on each case. Employees not made redundant in the initial 14 days of administration become ‘preferential’ creditors if made redundant later, increasing their chances of getting paid.

Vanguard Insolvency can offer further guidance on your employees’ rights in insolvency. With over 100 offices nationwide, we provide free same-day consultations to quickly understand your needs.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.