In this bulletin, we focus on the meaning of “employee”, directors claims and redundancies. Kirsty Cooke in our employment team considers the importance of employment status and who is classed as an “employee”; we consider director claims to the Redundancy Payment Service and the effects of making a claim; and we look at the consequences for administrators for failing to lodge a HR1 with BEIS when collective redundancies are being considered. Separately, Luke Fitton shares the government’s consultation on the personal insolvency framework, provides an update on the increased weekly redundancy pay cap and shares a case study on a director disqualified for 10 years for fraudulently claiming a £50,000 Bounce Back Loan.
Employment status continues to be a dynamic and contentious area of law. From an insolvency perspective, establishing an individual’s employment status is paramount as only employees can make a claim to the Redundancy Payment Service (the RPS) for unpaid payments.
Find out more about what constitutes an employee here
If a director is made redundant, they may be entitled to redundancy pay, but only if they are classed as an employee. There are 2 types of redundancy pay:
The contract will specify any additional payments the director is entitled to in addition to statutory redundancy pay. The contractual redundancy pay cannot be lower than statutory redundancy pay.
The RPS offers all employees, including directors (if they qualify), redundancy payments when the employer cannot afford to do so. These payments are made from the National Insurance Fund.
Find out more about the RPS and directors' claims here
The Courts have recently confirmed that administrators of an insolvent company can be prosecuted in their personal capacity for failing to notify the Secretary of State of proposed collective redundancies.
This is in addition to the potential civil penalties on the company itself as previously discussed here.
On 6 April 2022, the Employment Rights (Increase of Limits) Order 2022 came into force, increasing the cap on weekly statutory redundancy payments from £544 per week to £571 per week leaving the former employee to prove in the insolvency for any amount over and above that figure.
Further guidance can be found on the Insolvency Service website, available here.
A company director has been disqualified for 10 years after fraudulently claiming a £50,000 Bounce Back Loan.
Grigorijs Hacaturjancs was a director of Beauty & Melody Shop Ltd. Although the company’s accounts indicated that it ceased trading in 2019, and despite not being eligible for support under the scheme, Hacaturjancs applied for the Bounce Back Loan on the company's behalf in May 2020, inflating the company’s turnover to secure the maximum sum available.
Beauty & Melody went into voluntary liquidation in July 2021. Investigations revealed that prior to receipt of the Bounce Back Loan in May 2020, the company’s last sale had been in March 2019. Two weeks after receipt of the Bounce Back Loan, nearly £50,000 was paid to a Slovakian-based company which Hacaturjancs told investigators was a company supplier, despite the fact that Beauty & Melody had never done business with the company before and received no goods or services in return for the payment.
The Secretary of State for Business, Energy and Industrial Strategy accepted a disqualification undertaking from Hacaturjancs. The undertaking prevents him from directly, or indirectly, becoming involved in the promotion, formation or management of a company, without the permission of the court.
On 5 July 2022, the government issued a call for evidence seeking stakeholders’ views on the effectiveness of the UK's personal insolvency framework, including how it supports those in financial difficulty and the way in which it is funded.
Those who have experienced debt are invited as well as creditors and their representatives, trade bodies, debt advisers and charities, insolvency practitioners, recognised professional bodies, academics and any other interested parties.
The intention is that responses will help to develop a better understanding of the UK's existing personal insolvency framework and identify whether reforms are needed.
The consultation is open until 24 October 2022. More information is available here.
For more information on this bulletin, please contact our Restructuring & Insolvency team.
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