Possible to claim redundancy payment without liquidator?

[FirstTimeMD]

Hi everyone,

I wondered if anyone had successfully made a claim for redundancy payment for a Director who is closing down their own company rather than using a liquidator?

If so, what steps did you go through?

On the Insolvency Service website I see they require a CN number but I don't have one because there is no liquidator.

By way of background, although I'm a Director I've always paid myself through PAYE including national insurance contributions since October 2015. I have a standard employment contract and the company is Limited.

My company has become insolvent due to Covid-19 closing down the events industry for all this year and probably a big chunk of next year.

I tried to keep the company mothballed as long as possible but now I've run out of cash and I've been forced to close the company down using the Spongebob plan as I cannot afford an insolvency practitioner.

Receiving a redundancy payment would be a massive help as I try to find another job during challenging times.

Thanks all.

 

[Mr D]

Hi everyone,

I wondered if anyone had successfully made a claim for redundancy payment for a Director who is closing down their own company rather than using a liquidator?

If so, what steps did you go through?

On the Insolvency Service website I see they require a CN number but I don't have one because there is no liquidator.

By way of background, although I'm a Director I've always paid myself through PAYE including national insurance contributions since October 2015. I have a standard employment contract and the company is Limited.

My company has become insolvent due to Covid-19 closing down the events industry for all this year and probably a big chunk of next year.

I tried to keep the company mothballed as long as possible but now I've run out of cash and I've been forced to close the company down using the Spongebob plan as I cannot afford an insolvency practitioner.

Receiving a redundancy payment would be a massive help as I try to find another job during challenging times.

Thanks all.

Claiming from the company?

 

[Scalloway]

The director of a failed company can be entitled to a redundancy payment as an 'employee', depending on the facts of the particular case.

https://www.pinsentmasons.com/out-l...ndancy-award-rules-employment-appeal-tribunal

 

[Gavin Bates]

Hi

The CN number is requested by the insolvency practitioner when dealing with an insolvency case. The insolvency practitioner also has to submit relevant forms about the employee claims and the redundancy Payments Service will then check insolvency has occurred.

If there is no insolvency no claim will be paid.

The only other alternative is to effectively take your own Company through an employment tribunal claim in order to demonstrate it can't be paid and then you can claim. I would imagine the employment tribunal process will take a long time.

Sorry, I couldn't give you any better news, it is the government scheme and its there rules.

Regards

Gavin

 

[UK Contractor Accountant]

I have successfully claimed RP for Directors without going through a formal Insolvency procedure.

It was a few years back so the rules might have changed since then as mentioned above by Gavin above.

 

[JeremySilva]

Sorry about your events industry company FirstTimeMD.

Yes, I see that in the case Scalloway references the company indeed doesn't appear to have gone through a liquidation. The director clearly did have to take the company to tribunal though and it does appear to have taken some 2/3 years to get the decision. What appears to have been at issue was the director's right to the payment, not the insolvency. That was in 2011-14 so things may be different now.

@UK Contractor Accountant, did your director have to take the company to a tribunal too?

 

[Paul Carmen]

I'm a bit confused by some of the answers here, it's probably my lack of recent knowledge. I don't claim to be any sort of expert on redundancy or employment law, although I did a large amount of work around a group claim when made redundant some years back, when the company I worked for went into administration.

My understanding was if you are a company director and take a salary via PAYE, as opposed to dividends, then effectively you're an employee as well as a director, as long as you can prove this via an employment contract or implied employment terms; e.g. at least 2 years PAYE to yourself, work emails etc.

Surely taking yourself to a tribunal would only be for breach of employment terms (which probably don't exist) and not apply if insolvent (other than consultation/redundancy process); e.g. tribunal type claims are normally for summary/constructive dismissal, failure to fulfil employment contract, or failure to consult on redundancy?

Now if that's the case, it doesn't mean you should make yourself redundant and claim any money from the company, there are loads of pitfalls here; e.g. do you have an employment contract and does it set out redundancy terms, are there other creditors of the business, as they may outrank you if they're secured creditors and needed paying first?

There's also the question of whether the company has any funds, if it doesn't, the UK Government RPS (Redundancy Payment Service) steps in to pay up to a certain limit (£525 a week currently). You will have to fill in a form and prove you're an employee and lay out what/why you can claim, depending on length of service, years worked and your weekly salary.

The key bit here will be what you paid yourself and your age; e.g if you're 22-40 years old and based on your info, you have 5 years full employment, you could claim 1 weeks pay per full year, just for calculation purposes I've assumed you paid yourself £20k per year. This example would mean the RPS might pay 5 weeks (for 5 years service) x £384 (£20k / 52 weeks); total £1,920. There is more info on the RPS detail here: https://redundancyaid.co.uk/redundancy-pay-have-you-been-paid-what-you-are-owed/

It may be that this is very difficult and you may need professional help or guidance, especially if you have to go to a tribunal. In the two redundancy processes and tribunals I was involved in, many claims were struck out as they didn't complete the application forms properly. There are companies who help with this, but I'm not sure if they'll do it for one employee on a small value claim, but it might be worth seeing if they'll at least have a quick/free conversation with you, which may help: https://www.redundancyclaim.co.uk/director-redundancy/can-a-director-make-themselves-redundant

 

[UK Contractor Accountant]

76.51 Definition of insolvency for the purposes of claims to the National Insurance Fund
Where insolvency is a requirement for a successful claim (see paragraph 76.44), the legislation [note 14] defines it in terms of formal insolvency proceedings and does not extend to those employers who have simply ceased trading or, in the case of a company been dissolved without any preceding liquidation (see paragraph 76.52 for other circumstances not considered ‘insolvency’ for these purposes). In particular, insolvency is defined as:

• Where the employer is a company:
  • A winding-up order has been made, or a resolution for voluntary winding-up (see Chapter 56, Part 3) has been passed.
  • If the company is in administration (see Chapter 56.1) under the Act.
  • If a receiver or manager of the company’s undertaking has been appointed or if possession has been taken on behalf of or by the holders of any debentures secured by a floating charge (see Chapter 56, Part 2).
  • If a company voluntary arrangement (CVA) (see Chapter 56, Part 5) has been approved.
• 76.44 Claims to the National Insurance Fund – general
  
  The legislation [note 5] provides that, if an employer becomes insolvent (see paragraph 76.51), certain debts [note 6] (see paragraph 76.53) owing to employees, and a redundancy payment (see paragraph 76.55) may be paid by the Secretary of State from the National Insurance Fund.
  
  Wages, holiday pay, notice pay, a basic award for unfair dismissal and protective awards for an employer’s failure to consult representatives about proposed redundancies (a protective award – see paragraph 76.35) are payable only if the employer is insolvent (see paragraph 76.51).However, insolvency is not a pre-requisite for the Redundancy Payments Service (see paragraph 76.45) to make a payment in respect of statutory redundancy (see paragraph 76.55).
  
  The amount payable can also be off-set against a debt owed by the employee to the employer [note 7].
  
  Paragraphs 76.46 to 76.54 to give advice regarding claims in respect of outstanding wages, etc. and paragraph 76.55 give advice regarding redundancy claims.
  

 

[Paul Carmen]

@UK Contractor Accountant very interesting, the key detail seems to be defining and proving insolvency, as no claim can be made from the RPS without insolvency or personal bankruptcy/IVA.

It seems to be a bit of a catch 22, as unless another creditor winds up the company, you are doing it yourself voluntarily, which is probably not true in this case, but without funds for an insolvency practitioner how else do you wind up the company as an insolvency?

How did you claim RP for directors without going through a formal insolvency, or have the rules changed since then?

 

[UK Contractor Accountant]

but without funds for an insolvency practitioner how else do you wind up the company as an insolvency?

out of the redundancy pay to be received by the Director - a few IP's market this as a way to pay for a liquidation.

 

[UK Contractor Accountant]

@UK Contractor Accountant, did your director have to take the company to a tribunal too

I didn't. just argued the case with the RPO who sent out a special form for completion to prove the company was Insolvent. Other employees were involved as well not just the Directors so may have been looked at bit differently to the case of only Directors claiming.

That was a few years back though so things might have changed since then with 'computer saying no regime' in place now.

 

[JeremySilva]

So it appears that under 76.44 OP may be able to get a redundancy payment without a formal insolvency, and without having to go to a tribunal. However OP may not be able to recover any money for other things like unpaid wages or holiday pay. (Unfortunately I don't think the RPO's phone lines are manned at the moment due to Covid which won't help you make your claim.)

If the director is entitled to redundancy and/or other payments this is a possible way of funding a liquidation. Ideally I think most IPs would at least want some security for payment though - e.g. a deposit. The IP has a role in the processing of the director's claim and if the IP's fees become entirely contingent on the success of the claim you're introducing a perceived conflict of interest. This should be avoided wherever possible.

 

[Lisa Thomas]

A tribunal is the only way to get redundancy without a formal insolvency procedure where the employer is insolvent.

You will not get wage arrears. holiday pay, notice pay or pension pay.

 

[Lisa Thomas]

The RPO will snaffle the redundancy monies Jeremy so this won't cover the costs.

 

[JeremySilva]

I can't post the link but if you google the following you'll find the government guidance on this:

financial-assistance-for-employers-unable-to-pay-statutory-redundancy-payments

"If an employer cannot afford to pay their employees redundancy pay, they can apply to the Redundancy Payments Service (RPS) (part of a government agency called the Insolvency Service) for financial assistance. If approved, the RPS will make statutory redundancy payments directly to the redundant employees on the employer’s behalf.

Any employer who is not subject to formal insolvency proceedings can apply. This includes businesses that:

• are still trading
• have stopped trading but have not gone formally insolvent
• will soon stop trading but are not going formally insolvent"

I'm told that companies that have actually already dissolved are not eligible.

A tribunal is not a requirement. When I initially enquired about this a representative of Redundancy Payments told me "If the employer is not trading then you would need to make an application to an employment tribunal." This turned out to be wrong (and I'm told the person who told me that has been selected for 'further training'!)

If you have further queries you can email the department responsible for financial assistance on:

RPS.FA at insolvency.gov.uk

NB. This is for redundancy only. You can't get financial assistance for other claims (e.g. unpaid wages and holiday).

 

[UKbrnchEmplyee]

I can't post the link but if you google the following you'll find the government guidance on this:

financial-assistance-for-employers-unable-to-pay-statutory-redundancy-payments

"If an employer cannot afford to pay their employees redundancy pay, they can apply to the Redundancy Payments Service (RPS) (part of a government agency called the Insolvency Service) for financial assistance. If approved, the RPS will make statutory redundancy payments directly to the redundant employees on the employer’s behalf.

Any employer who is not subject to formal insolvency proceedings can apply. This includes businesses that:

• are still trading
• have stopped trading but have not gone formally insolvent
• will soon stop trading but are not going formally insolvent"

I'm told that companies that have actually already dissolved are not eligible.

A tribunal is not a requirement. When I initially enquired about this a representative of Redundancy Payments told me "If the employer is not trading then you would need to make an application to an employment tribunal." This turned out to be wrong (and I'm told the person who told me that has been selected for 'further training'!)

If you have further queries you can email the department responsible for financial assistance on:

RPS.FA at insolvency.gov.uk

NB. This is for redundancy only. You can't get financial assistance for other claims (e.g. unpaid wages and holiday).

Hi JeremySilva, this is super interesting. Could you provide more information please, how this turned out, i.e. if you have found out more than what you posted here, since? Kind regards

 

[Frank Wessely]

The scheme provides that businesses who have exhausted all other options can apply for Government assistance to pay redundancy entitlements where they cannot afford it themselves. However this is in essence a loan to the employer and will need to be repaid. Enforcement action would follow if repayment is not made.

Thanks.

 

[Gavin Bates]

As highlighted by Frank this scheme is for ongoing businesses and is in effect a loan that needs to be repaid, so won't fit the circumstances of the original question.