Monies owed by an employer when they become insolvent

When a business has become legally insolvent, a receiver or liquidator will be appointed. The receiver/liquidator will decide whether to keep the employees on or dismiss them.

If the receiver/liquidator is appointed by the court, this will automatically bring the contracts of employment to an end. If the receiver/liquidator wishes to keep on an employee in order to keep the business running, the employee will be offered a new contract and the receiver/liquidator may be the new employer. In such cases, the transfer of undertakings regulations may apply.

If the company is wound up voluntarily, that is, not by a court order, the receiver/ liquidator who is appointed will usually be considered to be acting as an agent of the company. If the receiver/liquidator wishes to keep on an employee, the existing contract of employment will usually continue to be in force. However, the receiver/liquidator could end the existing contract and offer the employee a new contract. If the receiver/liquidator were found to be the new employer, the transfer of undertakings regulations may apply.

Receivers/liquidators are liable only for rights an employee has accrued since the date the receiver/liquidator was appointed. It is common, when a receiver/liquidator is appointed, for her/him to write to all employees disclaiming liability for any rights an employee had accrued under the employment with the previous employer, such as pay in lieu of notice, holiday pay and pension contributions. These claims would continue to be against the former employer.

A receiver/liquidator will not have been appointed if the business has ceased trading but has not been formally wound up. In this situation the client will have to take any action against the employer direct or will have to think about whether to take action to wind up the employer's business in order that a receiver/liquidator is appointed.

If you are owed any money

Someone who is dismissed by a receiver/liquidator following the insolvency of a business will probably be owed some money.

If the business is transferred to a new owner, the transfer of undertakings regulations may apply to protect your rights acquired in your previous employment. If this is the case please seek further advice.

You may be owed:-

How can you recover any money owed

Receiver/liquidator has been appointed

Once an employer is insolvent and a receiver/liquidator is appointed, you can recover any money owed by:-

Receiver/liquidator has not been appointed

If a liquidator or receiver has not been appointed, you cannot usually use the National Insurance Fund. You will either have to sue the employer or make her/him insolvent in order to get the money s/he is owed. However if you are claiming statutory redundancy pay you can claim it from the National Insurance Fund, even though a receiver/liquidator has not been appointed

Seek further information if you are considering suing the employer and winding up the employer's business.

Claiming from the National Insurance Fund

What you can claim

If you are owed money by an insolvent employer, you may be able to claim a payment from the National Insurance Fund. You can claim the following debts but you should normally claim them through the receiver/liquidator:-
arrears of pay, including guarantee payments, contractual maternity or contractual sick pay, but not statutory maternity pay or statutory sick pay which can be paid by the Benefits Agency -

If you are owed statutory redundancy pay, you can also claim this from the National Insurance Fund. If the employer is insolvent, you could also claim it through the receiver/liquidator in addition to the debts listed above. However, if there is no receiver/liquidator, you can claim this direct from the Fund, so that you can make a claim if the employer has ceased trading but is not insolvent

Arrears of pay

Pay includes commission, overtime, bonuses, guarantee payments, and contractual maternity or sick pay. Expenses are not included in pay. You can only claim net pay, after deductions for tax and national insurance, and can only claim up to a maximum of eight weeks' pay.

You may not receive all the pay s/he is owed as there is a maximum weekly limit that can be paid out of the National Insurance Fund, irrespective of how much you earn. The maximum weekly limit is applied before deductions for tax and national insurance, so you will in effect receive less than the maximum weekly limit for each week's pay . (See the link to the DTI publications for information regarding weekly limits and how to calculate what you are due)

If you worked part time, or are only owed part of a week's pay, the maximum weekly limit will be applied pro-rata, for example, if you normally work two days a week you will be able to claim wages up to two fifths of the maximum weekly limit.

Pay in lieu of notice

You should be eligible to the statutory right to a minimum period of notice. You will be able to obtain a payment from the National Insurance Fund equivalent to that statutory entitlement. However, there is a maximum weekly amount of pay that can be claimed.

If you find another job, the amount of any wagesyou have earned will be deducted from the payment. Any jobseeker's allowance or income support you receive will also be deducted.

Holiday pay

You can claim up to six weeks' holiday pay. This may be for holidays taken but as yet unpaid, or for accrued holiday pay. Accrued holiday pay is calculated as the holiday earned, but not taken, in the twelve months immediately before the business became insolvent.

Redundancy pay

In addition to the debts you can claim from your employer if they are insolvent, you may be entitled to statutory redundancy pay. You will have to meet the usual rules for claiming statutory redundancy pay.

You can apply for statutory redundancy pay from the National Insurance Fund even if the employer has not formally been declared insolvent. This may happen where the employer has ceased trading or is unable to pay because of financial difficulties. In the latter case, the employer must show that making the redundancy payment would put the future of the business at risk and that s/he cannot obtain further credit. The employer will be expected to pay back the Fund as soon as possible.

Before making a payment to the employee from the National Insurance Fund, the Department of Trade and Industry Redundancy Payments Office (RPO) will need to be sure that the employee is entitled to statutory redundancy pay from the employer and either that:-

You will be expected to have made attempts to recover the statutory redundancy pay owed from the employer. This could include going to an employment tribunal but this may not be necessary if the employer can confirm to the National Insurance Fund that s/he cannot make the payment. However, if the client does go to an employment tribunal and the decision is in her/his favour, this may be sufficient to obtain a payment from the National Insurance Fund where the employer refuses to pay. BEWARE THERE ARE TIME LIMITS IN CLAMING THROUGH AN EMPLOYMENT TRIBUNAL - SEEK ADVICE

There is a limit on how much weekly pay can count when calculating the amount of statutory redundancy pay.

For information about the maximum amount of a weeks' pay that can count, see the link to the DTI web site.

If you have a contractual right to more redundancy pay than the amount given by statute, you cannot claim the extra amount from the National Insurance Fund. To recover the difference, you will have to make a claim to the receiver/liquidator as a creditor - seek further advice

Arrears of pension contributions

If the employer is insolvent and a receiver/liquidator has been appointed, unpaid contributions due from the employer to an occupational pension fund or a personal pension fund can be paid by the Redundancy Payments Office (RPO) A written application must be made to the RPO by the trustees of the fund for the full amount owed to the pension fund. Employees cannot apply individually.

Payment will be made provided that the RPO is satisfied that:-

If payment is made to the employee from the National Insurance Fund and s/he then recovers money from her/his employer, the payments made from the National Insurance Fund can be recouped from any money recovered.

The information given here is meant to be a guide only. If you have any difficulty please ensure you seek independent advice as soon as possible.