Helpsheets

We’ve prepared a helpsheet for employees setting out their rights on the insolvency of their employer and general helpsheets on the insolvency procedures and the key documentation creditors are likely to be provided with by the office holder. 

Employees: on the insolvency of their employer:

My employer has gone bust and can't pay me what I'm owed. I've had a letter telling me that I no longer have a job. What happens now?

If a company or business is insolvent, your employment has been terminated and your employer is unable to pay you what you are owed as an employee, there is protection in place to make sure that you do not lose out completely. You can make claims by applying to the National Insurance Fund via the Insolvency Service (IS).  Claims that you can make are:

  • unpaid wages or salary for up to eight weeks;
  • holiday pay for days not taken, but due under your contract of employment, up to a maximum of six weeks;
  • statutory notice pay;
  • redundancy;
  • a basic award for unfair dismissal.

Unpaid pension contributions can also be claimed for via the appointed insolvency practitioner.

For all these payments, from 6 April 2018, there is an upper limit of £508 a week.  If you are owed more than the RPS can pay, you must make a claim as a creditor in the insolvency.  There may not be enough money to pay you from the insolvency so unfortunately you may lose out on some of what is due to you.

You can claim for statutory notice pay if:

  • you worked the statutory notice period but not been paid by your employer;
  • you were dismissed without notice;
  • you haven’t worked your full notice.

You must remember that the notice part of any claim you may have needs to be minimised by you so you must take steps to claim whatever benefits you may be entitled to (November 2017 Jobseekers Allowance or Universal Credit).  The IS will deduct amounts received from the amount due.

Through the Fund, the IS will pay you the redundancy payment you would normally be entitled to from your employer. However, if your contract of employment set out more than the statutory minimum, you will not be entitled to payment through the Fund for that additional amount.

Redundancy pay is due if:

  • You have been continuously employed for 2 or more years;
  • You have applied in writing to your employer or an employment tribunal within 6 months of the job ending.

The amount due will be based on age and length of service.  You can calculate the amount due to you here 

I have been made redundant. What is the process for making a claim?

You should have received notification of appointment from the person, known as the office holder who will be a licensed insolvency practitioner or the Official Receiver (OR), who is dealing with the insolvent business.  The office holder or the OR will give you a factsheet that tells you what to do when you’ve been made redundant.  Make sure that the factsheet given to you has a case reference number written on it as without this you will not be able to proceed with your claim.  It is anticipated that you will be able to go online to make your claim and you will need to allow yourself enough time to complete the application which the government thinks will take you between 25-45 minutes.

The first claim you make will be for redundancy pay, unpaid holiday pay and unpaid wages.   If you decide that you also want to make a claim for not receiving notice of your dismissal, you will tick a box on the online form.  This claim is made separately once your statutory notice period ends.  You don’t need to keep track of this date as the RPS will contact you again when it is time for you to apply.

The government provides information to employees about your rights if your employer is insolvent which you can access here 

Company insolvency:

Administration

Company voluntary arrangement

Compulsory liquidation

Creditors’ voluntary liquidation

Personal insolvency:

Bankruptcy

Individual voluntary arrangement

Debt relief order


Getting Involved: Administration

What is administration?

Administration is a procedure available to a company that is insolvent, or is likely to become so. The company is placed under the control of an insolvency practitioner (IP) and the protection of the court to enable the IP to achieve one of the following objectives which are set out in law:

  • to rescue the company as a going concern (as opposed to the business that the company carries on).  If this is not possible,
  • to achieve a better result for the creditors as a whole than would be likely if the company were put into liquidation.  If this is not possible,
  • to realise the company’s property to make a distribution to the company’s secured or preferential creditors.

Whilst a company is in administration creditors are not able to take any actions against it except with the permission of the court.

Can I make a company go into administration?

Yes, as a creditor you may make an application to court for an order that the company be put into administration. There are other parties who can also make such an application including the company itself, its directors, a liquidator and a supervisor of a company voluntary arrangement.   However, the usual method of appointing an administrator is ‘out of court’ by the company, its directors or the holder of a qualifying floating charge (typically a bank or other financial lender).

What are the timescales involved?

How long it takes to put a company into administration varies on who makes the application but it’s not usually a lengthy process.

As soon as possible after appointment, the administrator must publish a notice of the appointment in the London Gazette, notify Companies House and tell creditors.

Within eight weeks of appointment the administrator provides proposals (a statement explaining what he or she has and is going to do in the administration) to creditors.

The administration usually lasts for a year but it can be extended.

How much does it cost?

The costs associated with making the application to court will depend on the nature and size of the company. You will need the help of a lawyer and an IP to make the application as a strategy must be discussed, in advance of the court hearing, to demonstrate that one of the objectives set out in law is achievable.

The administrator’s fees are paid by the company from the assets.

What involvement in the administration process do I have?

During the administration process, you will receive information from the administrator and be asked to provide information to him or her as follows:

  • Notification of appointment,
  • Proposals for the conduct of the administration,
  • Invitations to be on a committee representing the interests of all creditors,
  • Requests to approve the administrator’s fees and your rights to challenge fees drawn,
  • Requests for information on any concerns you may have regarding the conduct of the directors and on potential recoveries for the estate,
  • Request for details of your claim,
  • Progress reports,
  • Final report.

It is important to note that the administrator can upload all information provided to creditors (with some exceptions) to a secure website.  The administrator only needs to tell you formally once, by post or email, that he or she intends to do this and provide you with details on how to access the website. 

A summary of your involvement

Getting Involved: Company voluntary arrangement

What is a company voluntary arrangement?

A company voluntary arrangement (CVA) is a formal agreement between a company and its creditors to pay all or part of the amount owing. The proposal is made by the directors with the assistance of a licensed insolvency practitioner or by an administrator as the exit route from administration or by a liquidator.

The procedure is extremely flexible and the form which the voluntary arrangement takes will depend on the terms of the proposal agreed by creditors.  For example, a CVA may involve delayed or reduced payments of debt, capital restructuring or an orderly disposal of assets.

A vote is held to consider the proposal and more than 75% by value of creditors who vote on the proposal need to approve it.   It then becomes a legal binding agreement on the company and on the creditors even those who may not have agreed to it. During the CVA, interest on the debts is frozen and repayments are usually made to creditors from contributions from profits and perhaps the sale of some company assets.  Once the CVA is concluded, any remaining debts are written off.

A CVA is an alternative to insolvent liquidation.

Can I make someone who owes me money go into a CVA?

No.  

What are the timescales involved?

Creditors are sent the proposal and accompanying formal paperwork for consideration and vote on its approval or rejection.  This vote will take place on a set date between 14 and 28 days of creditors receiving the documentation.

The proposal itself sets out the timescale of the CVA, known as the duration.  

What involvement in the CVA process do I have?

During the CVA process, you will receive information from the licensed insolvency practitioner (IP) and be asked to provide information to him or her as follows:

  • A copy of the proposal and accompanying paperwork to enable you to vote on the proposal (with or without changes/modifications you may propose before you can agree to it).  The proposal will contain details of the nominee’s and supervisor’s proposed fees.
  • A copy of the nominee’s comments on the proposal and recommendation to creditors,
  • Notification of whether the proposal was accepted and any modifications made to it,
  • A request for details of your claim and notification regarding dividend payments,
  • Annual reports,
  • Final report.

It is important to note that the supervisor can upload all information provided to creditors (with some exceptions) to a secure website.  The supervisor only needs to tell you formally once, by post or email, that he or she intends to do this and provide you with details on how to access the website. 

A summary of your involvement


Getting Involved: Compulsory liquidation

What is compulsory liquidation?

Liquidation is the formal winding up of the company’s affairs which involves the realisation of the assets, for example the sale of any equipment; the collection of any debts due to the company, and the distribution of the proceeds in an order of priority.    

A compulsory liquidation of a company is a liquidation ordered by the court.  This is usually as a result of a petition presented to the court by a creditor.

It is worth noting that if the company has no assets you will not get your money back and it may be more commercially sensible to look at other ways to get your money back, for example mediation or making a court claim for the company to repay.

Can I make a company go into compulsory liquidation?

If you are a creditor of a company that can’t pay its debts, you can apply to the court to wind up the company. You can present a petition to the court in England, Wales and Northern Ireland if you are owed more than £750. 

If you are owed less than these amounts, you can consider getting together with other creditors so that your debt passes the minimum amounts.

You must first make a statutory demand which is a formal request to ask the company to pay you the money you are owed.

What are the timescales involved?

The statutory demand is served on the company which will have 21 days from receipt to either pay the debt due to you or reach an agreement with you to pay it.  If you don’t hear from the company or can’t reach a reasonable agreement, you can apply to the court to make a winding up order for the liquidation of the company.

How much does it cost?

The court fee to make a company go into compulsory liquidation at 1 September 2017 is:

  • £1,600 for a petition deposit
  • £280 for court costs
What involvement in the compulsory liquidation process do I have?

What involvement in the compulsory liquidation process do I have?

The Official Receiver is initially appointed as liquidator of the company, however as a creditor you may request that an insolvency practitioner (IP) be appointed in their place. 

During the liquidation process you will receive information from the liquidator and be asked to provide information to him or her as follows: 

  • Notification of appointment,
  • Report on the company’s assets and liabilities and reasons for failure,
  • Invitations to be on a committee representing the interests of all creditors,
  • If an insolvency practitioner is appointed, requests to approve the liquidator’s fees and your rights to challenge fees drawn,
  • Requests for information on any concerns you may have regarding the conduct of the directors and on potential recoveries for the estate,
  • Request for details of your claim and possibly notice for dividends (if funds allow),
  • If an IP is appointed as liquidator, annual reports,
  • Final report and request for your consent to the release of the liquidator.

It is important to note that the liquidator can upload all information to creditors (with some exceptions) to a secure website.  The liquidator only needs to tell you formally once, by post or email, that he or she intends to do this and provide you with details on how to access the website. 

A summary of your involvement


 

Getting Involved: Creditors’ voluntary liquidation 

What is a creditors’ voluntary liquidation?

Liquidation is the formal winding up of the company’s affairs which involves the realisation of the assets, for example the sale of any equipment; the collection of any debts due to the company, and the distribution of the proceeds in an order of priority.   

A creditors’ voluntary liquidation (CVL) usually happens because the director(s) decide that the company is unable to pays its debts.  The directors must call a shareholders’ meeting and if enough shareholders agree (75% by value of shares) a winding up resolution is passed and the company is put into liquidation.  Following this meeting, creditors are given the chance to vote on who becomes the liquidator of the company.  This vote will take place by either the deemed consent procedure or at a virtual meeting.

A CVL can also be an exit route from an administration procedure where there are funds available to pay a dividend to unsecured creditors.  The process and your involvement is not covered in this summary but is referred to here.

Can I make a company go into creditors’ voluntary liquidation?

No, the process is initiated by the directors of the company.

What are the timescales involved?

Creditors will receive documentation relating to the company’s insolvency and advised about the process for appointing a liquidator.  A decision regarding the appointment of the liquidator must take place within 14 days of the shareholder(s) passing a resolution to wind up the company.

How much does it cost?

The liquidator’s fees are usually paid as an expense of the winding up.  The liquidator must ask creditors to agree how these fees should be fixed and will provide information to you about your rights to challenge any fees drawn.

What involvement in the creditors’ voluntary liquidation process do I have?

During the CVL process you will receive information from the liquidator and asked to provide information to him or her as follows:

  • Notification of appointment,
  • Report on the company’s assets and liabilities and reasons for failure,
  • Invitations to be on a committee representing the interests of all creditors,
  • Requests to approve the liquidator’s fees and your rights to challenge fees drawn,
  • Requests for information on any concerns you may have regarding the conduct of the directors and on potential recoveries for the estate,
  • Details of your claim and possibly notice for dividends (if funds allow),
  • Annual reports,
  • Final report and consent to the release of the liquidator.

It is important to note that the liquidator can upload all information provided to creditors (with some exceptions) to a secure website.  The liquidator only needs to tell you formally once, by post or email, that he or she is going to upload all further information to a website and provide you with details on how to access it. 


 

A summary of your involvement

Getting Involved: Bankruptcy

What is bankruptcy?

Bankruptcy is the administration of the affairs of an insolvent individual by a trustee or official receiver in the interests of creditors.  When a person becomes bankrupt, the control of the assets, with certain exceptions, passes to the trustee whose job is to sell them and distribute the proceeds to creditors (after payment of the costs of dealing with the bankruptcy).  It is worth noting that if the person has no assets or regular surplus income you will not get your money back.

There are three main ways into bankruptcy:

  • A debtor can apply for their own bankruptcy;
  • A creditor can apply to make someone bankrupt;
  • A supervisor of a failed IVA can petition for the bankruptcy of the debtor.

Regardless of how a debtor enters into bankruptcy, once the bankruptcy order is made all bankruptcies will proceed the same.

As a creditor, bankruptcy is just one way you have of trying to recover the money owed to you.  Bankruptcy may have far reaching consequences for the individual so it is important that you consider this action carefully before proceeding.  Other options you can consider are:

  • Mediation, which could be quicker and cheaper
  • Making a claim in court for the money to be repaid
What are the timescales involved?

The statutory demand will be served on the individual (debtor) who will have 21 days from receipt to either pay the debt due to you or reach an agreement with you to pay it.  If you don’t hear from the person or can’t reach a reasonable agreement, you can apply to the court to make the person bankrupt.

How much does it cost?

The court fee to make someone bankrupt is set annually by the Government.  As at 1 September 2017, it is:

  • £990 for a petition deposit
  • £280 for court costs
What involvement in the bankruptcy process do I have?

The Official Receiver is initially appointed as trustee of the bankrupt estate, however as a creditor you may request that an insolvency practitioner (IP) be appointed in their place.  During the bankruptcy process you will receive information from the trustee and be asked to provide information to him or her as follows:

  • Notification of appointment,
  • Report on the debtor’s estate including assets and liabilities,
  • Invitations to be on a committee, representing the interests of all creditors,
  • If an insolvency practitioner is appointed, requests to approve the trustee’s fees and your rights to challenge fees drawn,
  • Requests for information on any concerns you may have regarding the conduct of the debtor and on potential recoveries for the estate,
  • Request details of your claim and possibly notice for dividends (if funds allow),
  • If an IP is appointed as trustee, annual reports,
  • Final report and request for your consent to the release of the trustee.

It is important to note that the trustee can upload all information provided to creditors (with some exceptions) to a secure website.  The trustee only needs to tell you formally once, by post or email, that he or she intends to do this and provide you with details on how to access the website. 

A summary of your involvement

Getting Involved: Individual Voluntary Arrangement

What is an individual voluntary arrangement?

An individual voluntary arrangement (IVA) is a formal agreement between an individual (the debtor) and his or her creditors to pay all or part of the amount owing. The proposal is made by the debtor with the assistance of a licensed insolvency practitioner.  A vote is held to consider the proposal and more than 75% by value of creditors who vote on the proposal need to approve it.   It then becomes a legal binding agreement on the individual and on the creditors, even those who may not have agreed to it. An IVA typically lasts five years during which time interest on the debts is frozen and repayments are made to creditors from assets and or contributions from the individual’s earnings or perhaps a third party.  Once the IVA is concluded, any remaining debts are written off.

An IVA is an alternative to bankruptcy.

Can I make someone who owes me money go into an IVA?

No.  

What are the timescales involved?

Creditors are sent the proposal and accompanying formal paperwork for consideration and vote on its approval or rejection.  This vote will take place on a set date between 14 and 28 days of creditors receiving the documentation.

The proposal itself sets out the timescale for the IVA, known as the duration.    

How much does it cost?

The fees charged by the insolvency practitioner are initially agreed with the debtor and then by the creditors.  There is usually a fee for setting up the IVA and then further fees for dealing with the realisation of funds.

What involvement in the IVA process do I have?

During the IVA process, you will receive information from the licensed insolvency practitioner (IP) and asked to provide information to him or her as follows:

  • A copy of the debtor’s proposal and accompanying paperwork to enable you to vote on the proposal (with or without changes/modifications you may require to agree to it).  The proposal will contain details of the nominee’s and supervisor’s proposed fees.
  • A copy of the IP’s comments on the proposal and recommendation to creditors,
  • Notification of whether the proposal was accepted and any modifications,
  • Request for details of your claim and notification regarding dividend payments,
  • Annual reports,
  • Final report.

It is important to note that the supervisor can upload all information provided to creditors (with some exceptions) to a secure website.  The supervisor only needs to tell you formally once, by post or email, that he or she is going to upload all further information to a website and provide you with details on how to access it. 

A summary of your involvement


 

Getting Involved: Debt Relief Order

What is a debt relief order?

A debt relief order (DRO) is available to an individual who can’t afford to pay you the money he or she owes.  A DRO is designed to help those who have less than £1,000 in assets; owe less than £20,000; and have less than £50 in surplus income per month.

There are some exceptions to the types of debt the individual can include in the DRO, for example child maintenance and court fines.

Can I seek a DRO for an individual?

No, this process is started by the individual.

What are the timescales involved?

A DRO is a formal process during which an individual doesn’t have to pay anything towards those debts included in the DRO for 12 months.  After this time, the debts included are written off and the DRO concluded.  Once the DRO is granted you will not be able to pursue the individual further unless the individual’s circumstances change during the DRO.

The official receiver decides whether to grant the DRO and will notify you if you are included as a creditor.