In the event that a winding up petition is served against a company, it is important to consider the rights of the company’s employees. The truth is that if the petition is heard and a winding up order is subsequently made, the company will be wound up and put out of business, with the inevitable consequence that all the employees will be dismissed.
A Winding up Petition Alone Does Not Guarantee Employee Redundancy
The act of a winding up petition being served does not necessarily spell the end for a business. If the winding up petition is dismissed by the judge or the debt owing is repaid, it is possible the business will continue much as it did before and jobs will be saved. The real consequences for the employees begin when a winding up order is made.
What happens to employees during compulsory liquidation?
Once the winding up order has been made and the compulsory liquidation begins (upon appointment of the liquidator), the employees will automatically be dismissed from their roles. At this point, the employee will become a preferential creditor of the company and will be eligible to receive a payment from the company for unpaid wages, payment in lieu of notice, redundancy pay, or holiday pay.
- Payments from the company
In terms of the hierarchy of who gets paid first after a company liquidation, preferential creditors are only paid after the liquidator’s fee and secured creditors, such as banks and other lenders, have been paid. This means that in many cases, there is not enough money to settle all employee claims.
- Filing a claim with the Redundancy Payments Service
If there are insufficient funds to pay employees from the company liquidation, they will be entitled to claim redundancy and other payments from the National Insurance Fund (NIF), subject to a cap. In this case, employees will have to fill out an RP1 form to claim payments. As long as it can be established they are entitled to funds, they will usually be paid within 3-6 weeks of the claim being made.
It’s not guaranteed employees will receive everything they are owed, but they can claim for:
- Up to eight weeks’ wages
- Up to six weeks’ holiday pay
- Statutory notice pay
- Unpaid pension contributions
- A basic award for unfair dismissal
Making a wrongful dismissal claim
According to the Transfer of Undertakings (Protection of Employment) regulations, also known as TUPE, employees who are dismissed as a result of a compulsory liquidation are allowed to file a wrongful dismissal claim against their employer. However, this is only the case if the employee can establish that:
- They were dismissed without being given adequate notice in accordance with the statutory minimum notice period;
- They were dismissed in breach of contract;
- They have suffered a loss as a result of the dismissal.
However, even if a claim for a wrongful dismissal is successful, the employee will only have a slim chance of receiving the money they are owed. This is due to the fact that wrongful dismissal claims are an unsecured debt, which means they are only paid once all other creditor payments have been made.
Being threatened with a winding up petition?
We can help, but the likelihood of us being able to help you successfully defend your company against a winding up petition very much depends on how quickly we can act after you receive the petition. Call Sue Collins for a no-obligation discussion on 0208 444 3400 or email firstname.lastname@example.org.