Redundancy payments and insolvency 





If the employer cannot pay statutory redundancy compensation because of insolvency, it becomes payable (subject to a cap) by the secretary of state through the Insolvency Service Redundancy Payments Office (RPO) (section 182, ERA 96). 





To make a claim, Form RP1 must be completed. The Form is available from the Insolvency Service via the redundancy payments helpline: Telephone: 0330 331 0020, open Monday to Friday 9am to 5pm. A claim can also be made online. There is more information on the website of the government’s Insolvency Service.





Payments by the RPO are funded by National Insurance contributions. Whatever the contract says, all such payments are capped at the weekly pay levels of the statutory redundancy scheme (£525 from April 2019). Any payment above this must be claimed as a debt in the employer’s insolvency.




If the employer was paying below the National Minimum Wage (NMW), payments by the RPO will be at the NMW rate. 





The RPO makes payments when the employer is in a recognised insolvency situation. This is when: 



• there is a court winding up order;





• there is an administration order;





• a resolution for voluntary winding up due to insolvency has been passed;





• a voluntary arrangement has been made with creditors; or 





• a receiver has been appointed.





In addition, statutory redundancy pay can be paid by the RPO where the employee has taken all reasonable steps other than legal proceedings to recover payment from the employer who has failed or refused to pay all or part of it (section 166(1), ERA 96).





The RPO limits the number of capped weeks’ pay it pays out, as follows: 





• statutory notice pay (in full);




• statutory redundancy pay (in full);




• arrears of pay (up to eight weeks);
and




• holiday pay (up to six weeks).




The eight weeks of pay need not be consecutive. Workers can choose the weeks most beneficial to them.





“Arrears of pay” includes any statutory guarantee payment, any payment for time off for trade union duties, any pay for suspension on medical or maternity grounds and any pay awarded under a protective award. Including the protective award within the "arrears of pay" means that in practice, employees caught out by insolvency situations usually lose most of their protective award, even if the business closed with no consultation.




Often when a company collapses, the most recent pension contributions have not been paid over by the employer into the pension scheme. Scheme trustees can sometimes make up these unpaid contributions from the National Insurance Fund. 





Employees must mitigate their losses by looking for another job and by applying for Jobseeker’s Allowance (JSA) if eligible. JSA is deducted even if the employee does not apply for it (Secretary of State for Employment v Stewart [1996] IRLR 334). 





Under section 188(2), ERA 96, an employee has three months (less one day) from the date of any decision of the secretary of state to withhold payment to bring a claim in the employment tribunal. Acas EC applies (see Chapter 14).



Where a worker was being paid a statutory employment benefit such as statutory sick pay or statutory maternity pay when the company became insolvent, these payments become the responsibility of HM Revenue & Customs (HMRC) who run a general helpline: 0300 200 3300. Workers should have their National Insurance number with them when they phone.