An Insolvency Practitioners’ guide to redundancy pay
In the 12 months to February 2025, 261,223 potential redundancies were disclosed to the Insolvency Service. Redundant employees have statutory rights, including getting redundancy pay, accrued holiday pay, notice pay, unpaid wages, and unpaid pension contributions. Normally the employer pays this. But what happens when a company goes out of business and there are not enough funds to cover these payments? The answer, which many are not aware of, is that the Redundancy Payment Service (a Government agency), can fund redundancy payments (subject to certain statutory limits) even when the insolvent employer is unable to pay these claims.
What can employees apply for when made redundant after insolvency?
Employees made redundant due to the insolvency of the company they worked for can apply for the following, (subject to certain caps* on what the Redundancy Payment Service will pay):
- Statutory redundancy pay, providing the employee has worked for their employer for at least 2 years.
- Accrued holiday pay.
- Unpaid wages, overtime and commission.
- Statutory notice pay.
- Unpaid pension contributions
(* The amount of redundancy pay people are entitled to depends on length of service, age, and rate of pay. The rate of gross weekly wages at the time of redundancy (currently up to a maximum of £700/week if made redundant after 6th April 2024) and the length of time in service (up to a maximum of at 20 years) are used to calculate the amount of redundancy pay.)
These statutory payments are claimed through the Redundancy Payments Service and are paid from the National Insurance Fund.
What about Redundancy Pay for Company Directors?
This can be a complex area. Directors can be entitled to the same redundancy payments when a business becomes insolvent as employees, providing they can prove their status as an employee of the company, and fulfil more than an advisory or non-executive role. It is important to obtain professional advice to establish whether such a claim can be established.
What is the role of Insolvency Practitioners in Redundancy Pay?
Insolvency Practitioners (IPs) play an important role in calculating redundancy pay when a company enters liquidation or some other insolvency procedure, including:
- Employee Claims: IPs guide employees through the process of claiming redundancy pay, unpaid wages, and other entitlements from the National Insurance Fund via the Redundancy Payments Service (RPS). They ensure employees meet eligibility criteria and submit the necessary documentation in a timely fashion.
- Case Reference Number: IPs provide employees with a case reference number, which is essential for submitting claims to the RPS.
- Asset Realization: They oversee the insolvency process, which involves selling the company’s assets. The proceeds are used to pay creditors, including employees, if funds are available.
- Legal Compliance: IPs ensure that the company complies with legal obligations, such as issuing redundancy notices and handling employee rights during the insolvency process. This is important to the directors as failure to follow the guidelines may result in fines or even a custodial sentence.
- Director Support: For directors who are also employees, IPs can assess their eligibility for redundancy pay and guide them through the claim process.
It is our job to save businesses – and jobs
One of the roles of IPs and restructuring specialists such as Antony Batty & Company is to save businesses (and jobs) where possible as well as to implement insolvency procedures, should they prove necessary. As the most recent R3 survey shows, where insolvency practitioners were involved, 39% of insolvent businesses were saved, 7,200 businesses were rescued and 297,000 jobs were saved.
Part of the service we offer to businesses in financial difficulties is to guide employees on the directors’ behalf and ensuring that accurate advice is given, as well as practical help and guidance.
Please contact us at any of out offices for an initial, FREE of charge, discussion:
