Insolvency Payments
Under part 14 of the Employment Rights (NI) Order 1996, the Redundancy Payments Service (RPS) pay certain entitlements (*) (within limits) owed to former employees of insolvent employers. This legislation, which implements the EU Insolvency Directive 80/987/EEC, guarantees a basic minimum payment to employees of insolvent employers, as they would otherwise have to wait some considerable time for payment, or get no payment, as creditors in the insolvency proceedings.
(*) Payments can include:
- Arrears of Pay
- Holiday Pay
- Pay-in-Lieu of Notice and
- Unpaid Pension Contributions.
Outstanding contractual debts remain listed in insolvency and may become payable only if the sale of an employer's assets realises enough money. Employees may also be entitled to redundancy pay under the separate provisions of part 12 of the 1996 Order. After they have secured this pay, the employees' rights and remedies in respect of these debts transfer to the Department for Employment and Learning. The claims for basic minimum payment and redundancy payment (but not for pensions) are paid direct by the RPS to the employees.
Employees must claim directly to the assigned Insolvency Practitioner for debts that fall outside the scope of Article 229 of the Employment Rights Order 1996. The Redundancy Payments Service has no involvement in such payments.
Definition of insolvency
The insolvency provisions of the 1996 Order apply only when an employer has become legally insolvent as defined in Article 228 of that Order. The Redundancy Payments Service has no discretion to make insolvency payments in any other circumstances. The table below shows the categories of insolvency included in the statutory definition and the dates when each becomes effective under the 1996 Order.
| Category of Insolvency | Effective date of insolvency |
|---|---|
| Bankruptcy | Date of bankruptcy order |
| Making of compositions and schemes of arrangement | Date of executing deed or signing contract, or operative date specified in the document |
| Making of administration orders (deceased insolvency) | Date of administration order |
| Company and limited liability partnership administration orders | Date of administration order |
| Company and limited liability partnership voluntary arrangements | Date arrangement is approved |
| Compulsory liquidations of companies and limited liability partnerships | Date of winding-up order |
| Voluntary liquidations of companies and limited liability partnerships | Date of passing of resolution for voluntary winding up |
| Receiverships or managerships of companies and limited liability partnership undertakings | Date of appointment of receiver or manager |
| Possession taken by debenture holders of companies and limited liability partnership property secured by a floating charge | Date of taking possession of property comprised in or subject to the charge |
Employment Rights Booklet ER 5 gives general information on what debts the Redundancy Payments Service may be able to settle on behalf of the Insolvent Employer. Other useful Employment Rights booklets in the series can be found in the main publications area of this website.