There comes a point in the life of many companies when liquidation will be considered as a way of dealing with the severe debts of the business.

In this article, Clarke Bell will discuss voluntary liquidation and how a company’s employees and directors can claim their statutory redundancy payments.

Creditors’ Voluntary Liquidation and employee redundancy

For insolvent companies, a Creditors’ Voluntary Liquidation (CVL) is one of the best methods of closing. It ensures both directors and creditors walk away with the most favourable outcome possible, and provides benefits to directors that the procedure is implemented smoothly.

Directors appoint an insolvency practitioner of their choice to the role of liquidator. In this role, they are responsible for opening lines of communication with creditors, identifying company assets, and disposing of them efficiently. Any proceeds raised will then be distributed amongst creditors according to a payment hierarchy. The company will then be wound up and struck off from the Companies House register, marking the end of the company as a commercial entity. 

{For more information on Creditors’ Voluntary Liquidations, read our complete guide to the procedure.}

Once the CVL procedure is underway, employees will be considered creditors for the purposes of repayment during liquidation. This means that a company’s employees will receive payments, if enough money is realised from the disposal of assets and emptying of accounts.

When will employees receive payments during liquidation?

As we mentioned, payments are given according to a hierarchy during liquidation. Upon the termination of their employment contracts, which is typically one of the first things a liquidator does, employees will be given their slot in the hierarchy depending on certain factors. 

If the company owes an employee wages, then that employee will be considered a preferential creditor, meaning they will be one of the first creditors to receive payment, if any money can be recovered from the company. 

In most other cases, employees will be considered unsecured creditors. This category of creditor sits below preferential creditors in the payment hierarchy, often meaning they will not receive many payments, if any at all. Employees in this category will likely have to look elsewhere for their redundancy payments.

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How employees can submit claims for redundancy payments

As a creditor, employees will be contacted by the liquidator appointed to deal with the liquidation of the company. This liquidator will be responsible for notifying employees whether they are likely to receive any payments, and roughly how much they can expect. 

If they cannot expect to receive their statutory payments, the liquidator must provide some instruction on how the employee can make a claim, and who to contact for more information. The liquidator should inform employees of the National Insurance Fund (NIF), the authority responsible for ensuring employees receive what they are owed.

Claiming statutory payments from the National Insurance Fund

Employees who do not receive what they are owed from their employer during liquidation are entitled to lodge their claims with the NIF. They will ensure that employees categorised as preferential creditors are paid in full, and will cover the remaining balance that the company could not. When making a claim with the NIF, employees are entitled to:

• Unpaid wages – Employees can claim up to four months of unpaid wages, totalling £800.
• Occupational pension payments – If an employee signed onto their company’s pension plan, they are entitled to claim up to four months of the contributions they made.
• Holiday pay – Employees can claim up to six weeks of holiday pay.

While the NIF can be greatly beneficial to employees, there are certain limitations in place:

• most payments are made on a weekly basis, with the amount being capped at £571 per week
• not every employee will be eligible to make a claim to the NIF. To be eligible for statutory payments, employees must have worked at the company for at least two full years prior to the company entering liquidation. If an employee falls short of this, they will not be entitled to any statutory payments.

Claiming director redundancy during voluntary liquidation

If you worked as a director for your company, you might be entitled to claim director redundancy during liquidation. 

As it is for employees, there are certain restrictions on who can make an application for director redundancy. For directors, there are three criteria you must meet:

• You must have worked as a contracted director for your company for at least two full years.
• The company must owe you money in salary or other expenses
• Your contract must have required you to work at least 16 hours a week for your company.

If you meet these criteria, you may be eligible to make a claim with the NIF. How much you can expect to receive is dependent on another series of factors, and is capped at £571 per week, like for employees. The longer you have worked for your company as a director, and the older you are, the more you can expect to receive, with a total cap of £30,000. 

If you think you are eligible for director redundancy, your liquidator can provide you with the forms necessary to make a claim.

Some firm might charge you an additional fee for dealing with the matter of the director redundancy. However, this is included within Clarke Bell’s liquidation fees.

Clarke Bell can help

If you are considering placing your company into liquidation, let Clarke Bell help you. 

We have more than 28 years of experience in helping directors to close their company using the CVL process; and we can do the same for you. 

Our fees are affordable, and our team is friendly and professional.

Contact us today for your free advice.