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Foreword

This document provides general information only.  Every effort has been made to ensure that the information is accurate, but it is not a full and authoritative statement of the law and you should not rely on it as such.  The Insolvency Service cannot accept any responsibility for any errors or omissions as a result of negligence or otherwise.

The Insolvency Service has revised this booklet for the guidance of insolvency practitioners (IPs) in dealing with claims under the insolvency provisions of the Employment Rights Act 1996. Further information is available from our Redundancy Payments Offices (RPOs) listed in Appendix 2. If in doubt, you should seek your own independent legal advice.

The Secretary of State for Business, Enterprise and Regulatory Reform (BERR) is responsible for making payments from the National Insurance Fund (NIF) under the insolvency provisions of the 1996 Act. Our RPOs carry out this function on behalf of the Secretary of State, operating to the standards published in the Insolvency Service Charter. These standards focus on the speed and accuracy of payments and on responding promptly and courteously to enquiries. They are set out on the following website address: http://www.insolvency.gov.uk/information/guidanceleaflets/charter/charter.html

As an IP, you have specific responsibilities under the 1996 Act. These are different from, though closely related to, your statutory duties under insolvency legislation in the administration of the affairs of insolvent employers and the assessment of claims of creditors, including employees. You play a vital role in the system.

Close co-operation between IPs and RPOs is essential for the system to operate effectively.

RPO managers are happy to talk to you about any problems, whether on specific cases or general procedures, and may be able to help with training IP staff new to this work.

Contents

Part1 - Scope of the provisions

1. Outline

Under the part 12 of the 1996 Act, RPOs pay certain entitlements (within limits) owed to former employees of insolvent companies.  This legislation, which implements the EU Insolvency Directives 80/987/EEC and 2002/74/EC, 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.  Outstanding contractual debts remain listed in the insolvency and may become payable only if the sale of a company’s assets realises enough money.  Employees may also be entitled to redundancy pay under the separate provisions of part 11 of the 1996 Act. After they have secured this pay, the employees’ rights and remedies in respect of these debts transfer to the Secretary of State. The claims for basic minimum payment and redundancy payment (but not for pensions) are paid direct by the RPO to the employees.

Employees must claim directly to you, as the IP, for debts that fall outside the scope of section 184 of the Employment Rights Act 1996. The RPO has no involvement in such payments.  Similarly, if a director’s claim for wages etc. is not paid from the NIF, you may admit the claim directly in the insolvency.

2. Definition of insolvency

The insolvency provisions of the 1996 Act apply only when an employer has become legally insolvent as defined in section 183 of the 1996 Act. The RPO has no discretion to make insolvency payments in any other circumstances. The table in appendix 1 shows the categories of insolvency included in the statutory definition and the dates when each becomes effective under the 1996 Act.

3. An insolvency practitioner

As an IP (referred to in the 1996 Act as a ‘relevant officer’), you are the person appointed to deal with an employer’s insolvency, that is:

·          a trustee in bankruptcy or, in Scotland, a permanent trustee;

·          a liquidator;

·          an administrator;

·          a receiver or manager;

·          a trustee under a composition or arrangement between an employer and his or her creditors, including the supervisor of a voluntary arrangement proposed for the purposes of, and approved under, the Insolvency Act 1986;

·          a supervisor of a Company Voluntary Arrangement;

·          a trustee under a trust deed executed by an employer for his or her creditors;

·          the Official Receiver acting as provisional liquidator or interim receiver.

You have specific responsibilities towards creditors (including, where appropriate, employees) under insolvency legislation. You also have a statutory responsibility under Section 187 of the 1996 Act to provide the Secretary of State on request, as soon as is reasonably practicable, a statement of the amount of any unpaid debt owed by the insolvent employer to any employee who is seeking payment from the Secretary of State.

Responsibility for making payments under the 1996 Act rests with the Secretary of State.  Acceptance of debts in an insolvency lies with you, the IP. The RPO must be satisfied of the insolvent employer’s liability for payment before it will pay a claim. It will not automatically pay even if you are prepared to admit the claim in the insolvency or have agreed the amount or status of the claim with the employee. 

4. People excluded from the provisions

Certain categories of workers are excluded from the insolvency provisions of the 1996 Act. These are:

·          self-employed;

·          share fishermen;

·          merchant seamen;

·          employees who normally work outside the UK, unless they have enough connection with the UK to bring themselves within the scope of the ERA. This will involve consideration of, amongst other things, the employee’s contract of employment, and where the employee was paid, taxed and received any benefits.

Employees who do not qualify to be paid from the NI Fund may be paid directly from the insolvency.

5. People covered by the provisions

To qualify for insolvency payments, an applicant must be an employee as defined by the 1996 Act. The term “employee” means an individual who has entered into or works (or worked) under a contract of employment. The Act defines a contract of employment as “a contract of service or apprenticeship, whether express or implied and (if it is express) whether oral or in writing”.

People who are partners of a business or engaged as independent contractors or freelance agents, and others who work under contracts for services (as opposed to contracts of service) are not covered by the term “employee”.

Whether or not someone is an employee is a matter of law and fact.  The main factors considered significant in determining employee status are:

·          if the individual has a written contract of employment, whether it is consistent with a contract of service;

·          the degree of control exercised by the employer over work done by the worker (master/servant relationship);

·          how the work was done;

·          whether the worker was considered to be part of the business, in the sense that the work done by the worker formed an integral part of it rather than simply provided a service for it;

·          whether the worker's involvement included a share of the profits or a risk of loss;

·          whether the work was done on the worker's own account or for the employer.

6. Claimants whose employee status may be in doubt

The most common atypical workers encountered are:

·          company directors;

·          sub-contractors;

·          freelance workers;

·          agency workers.

If there is doubt, or a dispute, you should consult the RPO for its opinion, as ultimately the decision whether or not to pay a claim under the Employment Rights Act rests with the Secretary of State subject to any ruling by an employment tribunal or court. If you cannot agree with the RPO on the employee status of an individual, the matter will be referred to an employment tribunal to determine.  You may be called as a witness to the hearing.  For guidance on the above categories where problems have arisen in the past, see Appendix 6.

7. Death of an employee or employer

Sections 206 and 207 of the 1996 Act set out employees’ rights if the employee or employer dies.  In either case, action under the insolvency provisions can be begun or continued by (or against) the deceased’s personal representative.

8. Debts payable under the 1996 Act

The following debts can be paid where the employer has become insolvent and the employee’s contract of employment has been terminated:

·          arrears of pay for one or more, but not more than 8 weeks (certain statutory payments are treated as arrears of pay for these purposes);

·          holiday pay for up to 6 weeks in all during the 12 months ending on the date of the insolvency;

·          payment for notice given, or for an employer’s failure to give proper notice, for the period required by section 86 of the 1996 Act;

·          a basic award of compensation for unfair dismissal made by an employment tribunal;

·          reasonable repayment of any fee or premium paid by an apprentice or articled clerk.

All but the last of these debts are subject to a limit on the amount that can be paid in relation to any one week. At the time of printing it is £330.  Please note that the Department for Business, Enterprise and Regulatory Reform (BERR) review this limit annually, usually from 1 February.  For information about the correct statutory limit in force please see the “Employment Matters” page on the BERR website on the following reference: http://www.BERR.gov.uk/employment/employment-legislation/employment-guidance/page19310.html

9. Arrears of pay

The RPO will pay arrears of pay owing from any one or more weeks up to a maximum of 8 weeks. Periods of less than a week from different weeks cannot be totalled to make a single week; they must be treated as separate weeks for the purpose of counting towards the 8-week maximum. The weeks for which arrears are claimed need not be the latest weeks of employment, nor need they be consecutive. They may fall at any time before the appropriate date (see paragraph 20) and should be the 8 weeks that are financially most beneficial to the employee. (“Week” for these purposes is defined in section 235(1) of the 1996 Act.)

The statutory limit applies to the gross debt, before deduction of basic rate tax, ERNIC etc. It must, where appropriate, be applied proportionately to part weeks. Arrears of pay may include the following:

·          unpaid wages (or unpaid portions of wages), overtime, bonuses and commission, provided that these were contractually payable and that they relate to a specific period of time;

·          amounts deducted for union dues but not paid over – these must be paid to the employee, not to the union;

·          deductions from wages under an attachment of earnings order not paid to court

·          certain statutory payments to which the employee is entitled, such as:

·          payments for time off in specified circumstances;

·          remuneration where the employee is suspended on medical or maternity grounds;

·          payment under a protective award made by a tribunal;

·          guaranteed payments for temporary lay-off.

If a claim comprises more than one of these elements, you should bear in mind that the limit applies to the total claim for a particular week, not to individual elements of it. You can find detailed guidance on the calculation of a week’s pay and the application of the weekly limit in appendix 3.

10. Holiday pay

The RPO will pay any holiday pay owing, up to a maximum of 6 weeks, provided the employee became entitled to it during the 12 months ending with the appropriate date (see paragraph 20). Holiday pay includes pay for holidays already taken and holidays accrued but not yet taken. 

The limit on the amount payable in respect of any one week applies in all cases and must be apportioned as necessary (see Appendix 4).

The working time regulations provide a basic statutory minimum holiday entitlement but some employers give a greater contractual entitlement to holidays.  These are not two separate entitlements – the contractual entitlement is used to satisfy the statutory requirements and vice versa.  However, an employee can take advantage of whichever right, in any particular respect of the holiday entitlement, is the more favourable.

The statutory holiday entitlement will be increased to 4.8 weeks from 1 October 2007 and to 5.6 weeks from April 2009.  For information about how to calculate entitlement please see the Department for Business, Enterprise and Regulatory Reform (BERR) website on http://www.berr.gov.uk/employment/holidays/index.html which includes a ready reckoner for calculating holiday entitlement.  Please note that the Working time Regulations provide the minimum statutory entitlement and that any contractual entitlement counts towards satisfying those requirements. 

11. Compensatory notice pay

The RPO can pay the amount, subject to the statutory limits, which the employer was liable to pay the employee for the minimum period of notice required by section 86 of the 1996 Act or for his failure to give that period of notice. The statutory minimum periods of notice are:

·          one week for employees continuously employed for one month or more but less than two years;

·          one week for each year of continuous  employment of two years or more but less than 12 years;

·          12 weeks for 12 or more years of continuous employment.

Employees who work under fixed-term contracts that specify the duration of employment may not require any notice of termination. No right to notice is imported into such contracts by section 86 of the 1996 Act. However, if a fixed-term contract does allow early termination where the employer gives notice, section 86 may apply. You can find more detailed guidance to the notice provisions at:  http://www.BERR.gov.uk/employment/employment-legislation/employment-guidance/page18474.html

If an employer gave an employee notice but, because of the insolvency, the employment actually terminated before the notice period expired, the periods before and after the termination should be dealt with differently.  An employee’s notice period starts the day after he or she is given notice.  If no notice is given it starts the day after he or she is dismissed.  If the employee worked all or part of the notice period but was not paid for it, the claim is paid as if it was wages and will be subject to basic tax and national insurance, however, the period does not count toward the limit of 8 weeks’ arrears of pay as it is attributable to the number of weeks notice due. The IP should make this quite clear on the RP14.  Pay for the balance of the period that relates entirely to the period after termination should be claimed as notice pay; it should be assessed and paid as damages for breach of contract.  Please ensure that the RPO is notified of any such cases in writing.

An employer who fails to give the minimum statutory notice is liable to pay damages for wrongful dismissal. Such damages are subject to mitigation, as is an employee’s entitlement to notice pay under the insolvency provisions. Income received by the employee will be offset against any notice pay due from the insolvent employer. The employee must take all reasonable steps after the dismissal to minimise his or her loss by finding another job or by claiming the statutory benefits to which they may be entitled. If an employee has failed to take these steps during the notice period, the RPO may reduce the amount of the notice payment.

If an employee gives notice of termination to the employer and is then dismissed before the end of the notice period, you should ignore the employee’s notice period in determining the statutory notice that the employer must give.  This is because it is the employer that actually terminates the employment.  However, one of the qualifying conditions for payment is that the employee must be “ready and willing to work during the notice period, even though there is none available”.  This means that for the purposes of notice pay you should count only the period from the termination date to the end of the notice period given by the employee. 

12. Basic award of compensation for unfair dismissal

An unpaid basic award of compensation for unfair dismissal made by an employment tribunal is payable in full. A compensatory award is not payable.

13. Reimbursement of apprentices’ or articled clerks’ fees and premiums

The RPO may pay a sum that it considers reasonable to reimburse the fee or premium for the unexpired term of the apprenticeship or articles.

14. Protective award

Payment due to an employee under a protective award made by an employment tribunal under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 is payable, within limits, under the insolvency provisions. It is treated for these purposes as arrears of pay. A tribunal making a protective award must specify:

·        the number of days in the protected period – which should not exceed 90;

·        the start date of the protected period – this is the date of the first of the dismissals being complained about or the date of the award, whichever is the earlier;

·        the description of employees covered by the award.

The Secretary of State will not have been a party to the tribunal proceedings. Therefore, on receiving the tribunal’s decision you should send a copy to the appropriate RPO, with a list of names and addresses of the relevant employees. You also need to send a list of the names and address of the employees to the Local Jobcentre Plus as directed by the recoupment of Jobseekers allowance regulations.  The Jobcentre is responsible for lodging a claim for the Jobseekers allowance paid during the protected period, with the exception of the period paid by the RPO.  You should also check that all the bulleted items listed above have been included in the decision. If any of these has been omitted, it may be impossible to calculate the payments. In such cases you should contact the RPO immediately for advice, as the parties may have to apply for a review of the tribunal’s decision.

Occasionally a decision is worded so as to apply only to union members. This is wrong in law, as the 1992 Act does not discriminate against non-union members – “union member” is NOT a description of employee.  You should advise any excluded ‘description’ of employees who think they should be covered by the award to apply directly to an employment tribunal under section 192 of the 1992 Act, as this is the only legal means to resolve the exclusion.

The RPO calculates the awards and sends the payments direct to the employees.

15. Redundancy pay

Under separate provisions of section 168 of the 1996 Act the RPO can also pay any statutory redundancy pay to which an employee is entitled. The redundancy payments provisions are outlined in the booklet “Redundancy Entitlement – Statutory Rights” (PL808), available on the “Employment Matters” page on the BERR website on the following reference http://www.BERR.gov.uk/employment/employment-legislation/employment-guidance/page15686.html

You can find basic information about redundancy entitlement where an employer is insolvent in the booklet “Redundancy and Insolvency – A Guide for Employees” (which also includes a tear-off RP1 claim form). You can get this booklet free of charge (see Appendix 2). For general enquiries about entitlement to these payments, call the help line (see Appendix 2).

This information includes the changes made under the Age legislation, which came into force on 1 October 2006.  The main points are:

·          Removal of the lower and upper age limits of 18 and 65

·          Removal of age tapering in the year before retirement age 64

·          Removal of optional occupational pension offset against redundancy pay.

16            Statutory maternity and sick pay

For enquiries about entitlement to statutory maternity pay, please contact Her Majesty’s Revenue and Customs (HMRC) as it has responsibility for maternity pay.  Contact your local tax office for assistance, or its helpline for experienced employers on 08457 143143.

For enquiries about statutory sick pay, contact the Department for Work and Pensions (DWP) as this is its responsibility.  http://www.dwp.gov.uk/lifeevent/benefits/statutory_sick_pay.asp Please contact your local Jobcentre Plus for information, or of disputed payment contact HMRC on the above number.

17. Unpaid pension contributions

As well as making payments to employees, the RPO may make payments to pension funds where the employer has failed to pay contributions due on his or her own behalf or the employees. Arrangements for such payments are described briefly at appendix 7 and more fully in a separate leaflet IL2 “Insolvency of Employers: safeguard of occupational pension scheme contributions”. You can get this booklet free of charge - see appendix 2.

18. Claims in the insolvency

Payment by the RPO does not prejudice the right of any employee to seek recovery of any other debts, or debts in excess of the statutory upper limits, from the insolvent employer’s assets in the usual way. Nor does payment by the Secretary of State imply that you, as IP, are bound to admit a claim by the employee, or the Secretary of State’s subrogated claim, which you do not think is valid under insolvency legislation. If, before payment is made from the NIF, it becomes apparent that you do not agree that the employee is entitled to payment and would not accept the claim in the insolvency, the RPO would reject the claim and refer the matter to an employment tribunal for a legal ruling on the validity of the claim against the employer.

19. Retained employees

If you keep employees at work after the date of insolvency, you should pay wages for that period out of the funds of the insolvent employer, which you are entitled to use to continue necessary services. You must ensure that no claims for wages for periods after the insolvency date are made under the insolvency provisions if the employees are later dismissed. Wherever possible, you must give retained employees proper notice of the eventual termination of their employment, to reduce the debt against the employer and the burden on the NIF.

20. The appropriate date

The RPO has the power to pay only the debts that are due and unpaid on the “appropriate date”, defined as:

·          in relation to arrears of pay (except remuneration under a protective award) and to holiday pay, the date on which the employer became insolvent;

·          in relation to remuneration under a protective award or to a basic award of compensation for unfair dismissal, the latest of :

o       the date on which the employer became insolvent;

o       the employee’s termination date; and

o       the date on which the award was made;

·          in relation to any other debt, whichever is the later of:

o       the date on which the employer became insolvent;

o       the employee’s termination date.

21. Claimants right to complain to an employment tribunal

An employee who has applied for an insolvency payment has the right, under section 188 of the 1996 Act, to complain to an employment tribunal against the decision of the Secretary of State if:

·          the Secretary of State has failed to make any payment; or

·          the payment by the Secretary of State is less than the amount that the employee considers should have been paid.

The respondent in all such cases will be the Secretary of State.  In general you as IP should not be a respondent, but may be called as a witness in any dispute over entitlement. If the RPO rejects a claim made under the insolvency provisions, it will advise an employee to name as respondent in any appeal the Secretary of State for Business, Enterprise and Regulatory Reform and to give the address of the RPO dealing with the claims. The RPO will also advise the employee to name any other appropriate respondent. For example, the transferee in a case where there was a TUPE transfer.  If you receive a copy of the tribunal claim form ET1 for claims against the employer, it would be helpful if you would inform the RPO if you notice that the Secretary of State has not been named as a respondent rather than ignore the claim.  The RPO can then intervene in the case if needs be.

Part 2 - The procedure

22. Information

Losing a job through the employer’s insolvency can come as a shock, even where the employer has been known to be in financial difficulty for some time. One of the first things employees will want to know is what they are entitled to and how they can get help. The resources that you can make available to help with such queries will vary. In customer surveys employees often complain that they did not receive the relevant explanatory leaflets. Appendix 3 lists the main forms and booklets used.  Please ensure that you issue the complete RP1 & Booklet – A guide for employees on the insolvency of their employer.  Do not tear out the RP1 forms or issue down loaded RP1 forms without the booklets.

23. RPO objective

The RPO’s objective is to ensure that employees receive money to which they are entitled as quickly as possible. The RPO may calculate some individuals’ entitlements sooner than others.  This may be because it has to make extra enquiries, for example for directors, sub-contractors or employees on long-term absence, transfer information. However, the RPO will make every effort to achieve the targets set out in the Insolvency Service Charter booklet. 

In addition to this our Inspectors carry out a random check on 20% of wages records, but they will carry out additional checks where there are specific concerns about the records or the legitimacy of employees claims.  It would assist the Inspectors if you have all the records available for inspection when they visit.

24. The Insolvency Service Charter

The charter outlines what debts can be paid, briefly describes how claims are handled and gives the number of the helpline (see appendix 2), which is there to advise and deal with general enquiries. Please issue a copy to employees.

25. Notification and consultation about proposed collective redundancies

Employers may consult you about putting a company into insolvency before your formal appointment.  At that stage you should recommend that the employer starts the redundancy notification and consultation process immediately so that it is in motion at the time of your appointment. 

You may also wish to advise employers to contact the Jobcentre Plus for assistance for employees facing redundancy.  More information about how the Jobcentre can help is available at: http://www.jobcentreplus.gov.uk/cms.asp?Page=/Home/Employers/HelpwithRedundancies

26. Consultation with employees’ representatives and protective awards

A company’s insolvency does not affect the normal statutory duty to consult appropriate employees’ representatives about proposed redundancies, as set out in section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992. 

Responsibility for conducting such consultation rests mainly with the employer but will fall to you if the employer has not started the consultation process before your appointment.  Failure to carry out the necessary consultation may lead to a protective award for the affected employees and increase the employer’s debt. 

You may not incur a liability against the company if there are special reasons for you being unable to comply with the information and consultation requirements within the statutory time scales.

You should take all reasonable steps to reduce the liability against the company and the NI Fund by taking the relevant action within the time available before the dismissals and defending this action before an employment tribunal.  You can find further information in the booklet “Redundancy consultation and notification PL833”, which is available on the following BERR website: http://www.BERR.gov.uk/employment/employment-legislation/employment-guidance/page13852.html

27. Notification process

An employer proposing to dismiss 20 or more employees as redundant at one establishment within a 90-day period has a statutory duty to notify the Birmingham RPO who acts for Secretary of State for Trade and Industry (section 193 of the Trade Union and Labour Relations (Consolidation) Act 1992). This is so that government departments and agencies and the Jobcentre Plus Rapid Response Service can be alerted and prepared to take any appropriate measures to assist or retrain the employees in question.  Changes to the legislation following the ECJ case in Junk include the requirement to notify the Secretary of State at the Birmingham RPO before any individual notices of dismissal are given.

The notification must be in writing on form HR1, which you can get from the BERR Publications Orderline on 0845 015 0010, or email pubs.unit@BERR.gsi.gov.uk.  You can also download the form from http://www.insolvency.gov.uk/pdfs/rpforms/hr1.pdf

There is a specified time limit for a notification.  The date of notification is the date on which it is received by the RPO.  The minimum times are:

·          at least 30 days if between 20 and 99 employees may be dismissed;

·          at least 90 days if 100 or more employees may be dismissed

An employer who has already notified one group of proposed redundancy dismissals and later decides to make a further group redundant need not add the numbers of employees together to calculate the minimum period for either group.

There is no obligation to notify redundancies of fewer than 20 employees within a 90-day period, but employers may nevertheless wish to consider doing so in borderline cases – particularly if the numbers involved are uncertain.

The notification should be sent by post, fax, email, or delivered by hand to the office stated on form HR1. Employers must also give or send a copy of the notification to the representatives with whom they must consult about the proposed redundancies.

In special circumstances it may not be reasonably practicable for the employer to meet fully the requirements for minimum notification periods. In such circumstances, the employer must take all reasonably practicable steps toward meeting the requirements and explain why they cannot be met in full – it may help to reduce the period for a protective award.

28. Penalty for non-compliance with notification procedure

If an employer fails to give the required notification, and failed to demonstrate any special circumstances for not fully meeting the requirements, the RPO may start legal proceedings that could lead, on summary conviction, to a fine of up to £5,000. (This upper limit is subject to review from time to time.)

29. Issue of claim forms

RP1 is the main application form for payment from the NIF.  It is incorporated as a tear-off in the booklet “Redundancy and Insolvency – A Guide for Employees”.  The whole booklet should be issued to employees as soon as possible after dismissal. The booklet should not be issued to any employees until they have been formally made redundant, or transferred under TUPE 2006. This is because their contract of employment must have officially ended before the RPO can consider making payments. Where employees have left of their own accord and are owed arrears of pay and/or holiday pay, an RP1 can be issued. In these cases the RP14a must state clearly that the employee resigned and the date of the resignation.

Employees should complete form RP1 as soon as possible after dismissal. Some IPs may use a computerised version of RP1 that sets out the relevant information and requires only agreement and signature by the employee. This is acceptable. However, employees must not be asked to sign and date blank forms to be completed later on their behalf. An appointed agent or personal representative may complete an RP1 on an employee’s behalf if the employee needs help in completing the form because of incapacity or illiteracy, or if an employee dies soon after the appropriate date.

RP2 form is the main application for claiming compensatory notice pay. It is computer generated and the RPO will send it direct to employees at the end of their statutory notice period. 

RP13 form is an application for a refund of notional tax deducted from compensatory notice pay and is sent out by the RPO.  

30. Issue of information gathering forms

RP3 form is for more information about office holders in company and is sent out by the RPO.

RP4 is for more information from subcontractors, freelance workers and casuals and is sent out by the RPO.

RP14 Questionnaire is for more information about the company and TUPE transfers (Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006 / 246). IPs should hold stocks of RP14s, as they are required in all cases.  The RPO does not usually make payments without a statement from the IP about whether or not the undertaking of the insolvent employer has been transferred to a new owner.

RP14A is statement of debt owed to employees.  The RPO does not usually make payments without a statement from the IP of the amount of unpaid debt owed to the employees at the appropriate date.  The RP14A is the relevant form for notifying these details. You should hold stocks of RP14As and send one to the RPO before or with the first completed RP1 claim forms.  IP’s who use Turnkey can send in an electronic version.

RP18 form is for more information about TUPE transfers from the transferee or the transferor and is sent out by RPO

RP19 form is for more information about TUPE transfers from an employee and is sent out by RPO.

31. Action on return of completed forms

The employee should return form RP1 direct to the IP, who will verify and forward the claims to the relevant RPO as soon as possible. Checks may be made later by an RPO Inspector or by enquiry from an RPO. Records maintained by the insolvent employer should generally provide enough information from which to check or calculate an employee’s entitlements. All such information must be made available. If the wage records are insufficient, you should discuss the facts of the case with the appropriate RPO to agree how far the claims should be admitted.

32. Completion of questionnaire and statement of employees’ debts (RP14/14A)

The RPO cannot pay debts owed to employees until it is satisfied that their employment has not been transferred to a new employer through the TUPE Regulations and received a statement of debts owed to the employees. Form RP14 is a questionnaire seeking information about whether an undertaking has been transferred as well as general information about the employees and employer’s contractual arrangements.

Please send RP14 and RP14A to the RPO with the first completed claim forms, with a copy of any sale agreement and any other relevant documents. If you submit claims without an RP14, the RPO will send one to you.

If you continue to trade the business of the employer but dismiss employees at various stages, you should not wait until all dismissals have been carried out but should send an RP14 covering the first batch of dismissals and inform the RPO in writing of any change in circumstances for each subsequent batch, particularly about TUPE transfers. In this way the RPO can process without delay claims for any employees who are clearly not covered by a transfer, while investigating claims for other later dismissals that may be covered.

General information about the TUPE regulations and how they can affect claims is set out in Appendix 4. Further information is available at: http://www.BERR.gov.uk/employment/trade-union-rights/tupe/page16289.html

If you are uncertain about the effect of the regulations in a particular case, please discuss this with the appropriate RPO. Any guidance provided by the RPO will be on a “without prejudice” basis. Whether or not the RPO considers that claims are payable in any circumstances, employees have a right to bring claims in an employment tribunal against the transferee employer, if they consider that the regulations apply to them.

33. Set off of debts between employee and employer

Occasionally, an employee will owe money to his or her employer at the appropriate date. In such cases the employee’s entitlement under the insolvency provisions will be the net amount owed after set-off, see the EAT case of Secretary of State for Employment v 1) Wilson & ors and 2) BCCI [1996] IRLR 330. (Income tax and ERNIC, however, are payable on the gross amount owed before set-off.) You must give the RPO full written details of the amount owed to the employer and the gross amounts owed to the employee and attach it to the RP14A. If there is a written agreement between the employer and employee on repayment, you should provide a copy. It is essential that the information be forwarded to the RPO immediately you become aware of it.  Unless you give this information at the outset, the RPO will not be able to initiate the set-off.  You will, therefore, have to pursue the individual for the money owed to the insolvent company. 

34. Attachment of earnings orders

Occasionally an employee may have a court order requiring their employer to make deductions from their wages and pay them directly to the court (or other party).  As the Secretary of State is not the employer, the RPO is not empowered to make deductions and make direct payment to the court.  In such cases you must tell the employee that he or she is responsible for making the payments to the court.

35. Deduction of tax and national insurance contributions by RPO

The RPO will deduct from arrears of pay and holiday pay an amount of income tax at the basic rate in force at the time payment is made. The employee’s share of ERNIC will also be deducted from the payment. The rates of contributions and earnings limits are the weekly rates and limits current at the time of payment, without regard to any previous pay practice. The number of weeks covered by an arrears payment will also be taken into account in assessing ERNIC liability.

36. Subrogated rights

Where an employee is paid from the NI Fund, the RPO acting on behalf of the Secretary of State takes over the employee’s rights to recover that amount of the debt under Sections 167 and 189 of the 1996 Act.  These rights include any right of priority conferred under insolvency legislation.  The RPO has the same rights as the employee to be paid in priority to the employer’s other creditors.  The RPO’s claims must be calculated against the individual employees’ entitlements and not as a gross overall total against the employer. Any sums that the RPO recovers from the employer are repaid to the NIF.  There is no difference in the treatment of statutory or contractual entitlements for subrogation purposes.

37. Lodging the RPO claim in an insolvency

The insolvency provisions of the 1996 Act do not affect the priority given to certain debts by Schedule 6 to the Insolvency Act 1986. This Schedule says that certain payments will be given preferential treatment within the limits that govern such priority. 

Employees’ priority claims are:

·          all accrued holiday pay, that is for holiday not yet taken to which the employee became entitled in the 12 months before the insolvency date;

·          wages up to £800 in the four months immediately before the insolvency date;

·          a protective award is treated as wages.  The period of the award may span the insolvency date.  If so, the period before the insolvency date may be preferential subject to the limit, and the post-insolvency period is unsecured

Other priority claims are certain occupational pension contributions;

·        employees contributions deducted from pay in the four months preceding the insolvency date.

·        employer’s contributions from schemes contracted out of the State earning related pension scheme to the extent of the level by which the NI contribution is reduced in relation to the 12 months preceding the insolvency date.

The RPO will send you an RP11 and RP 12 showing the preferential and non-preferential amounts paid to employees and how the payments were calculated.  A proof of debt letter will also be sent to you stating the total preferential and non-preferential amounts due to the RPO. 

38. Crown Set off

The House of Lords, in the case of Secretary of State for Trade and Industry v Frid (West End Networks Ltd), found that the RPO was entitled to Crown set-off.  The full decision is available on: http://www.parliament.the-stationery-office.co.uk/pa/ld200304/ldjudgmt/jd040513/frid-1.htm 

Set-off applies to both preferential and non-preferential debts.  The Insolvency Act does not give any clear instruction as to how the set-off is apportioned between the two classes of debt; however, this position was resolved in the courts.  The approach is different in England and Wales to that in Scotland (see Appendix 8 for examples of calculations).

The RPO will send a revised proof-of-debt letter to inform you of the set-off, which shows the total amount and the outstanding balances of unpaid preferential and non-preferential debts which will have been adjusted to reflect the amount after set-off.  It should avoid overpayments by you and requests for the RPO to repay dividends.

39. Preferential claims

For preferential claims only, section 189(3) of the 1996 Act states that the employee’s claim and the RPO’s claim must be added together for computing preferential amounts due.  Section 189(4) of the 1996 Act gave the RPO the right to be paid in priority to any other unsatisfied claims of employees (the so-called “super-preference” status), however, this part only of the Act has been repealed for cases where the date of insolvency is on or after 15 September 2003.  From that date the RPO has equal preference with the employee.  However, if the insolvency falls before 15 September 2003, the Secretary of State retains super-preferential status over the claims of employees.

Please take care to separate claims for wages and holiday pay when making preferential dividends, otherwise there is a danger that the employees and the RPO could be under/overpaid.

40. Example of distribution for an employee who was made redundant in June 2002 and the insolvency date is before 15 September 2003

An employee’s gross claim against his former employer is as follows:

·        4 weeks’ wages @ £500 per week = £2,000 (£800 preferential; £1,200 non-preferential)

·        6 weeks’ holiday pay @ £500 per week = £3,000 (all preferential)

·        Total preferential claims = £3,800

Payments to an employee from the NI Fund are limited by statute, and the RPO paid £2,500 of the employee’s claim as follows:

·        4 weeks’ wages @ £250 per week = £1,000 (£800 preferential and £200 non-preferential).

·        6 weeks’ holiday pay @ £250 per week = £1,500 (all preferential)

The RPO takes over the employee’s rights in the insolvency in respect of the amounts it has paid the claimant out of the NI Fund.  For each category of preferential payments, the RPO must be paid in full before the employee receives any balance of the preferential amount due. 

For preferential claims:

·        The total claim is £3,800 made up of £800 for wages and £3,000 for holiday pay.

·        The RPO paid £800 wages and £1,500 holiday pay. 

·        The employee’s remaining unpaid preferential claim is £1,500 holiday pay only. 

If a dividend of 70p in the pound is payable for preferential debts, then the amounts available are £560 for wages and £2,100 for holiday pay. From this, the RPO receives all the £560 available for wages plus the £1,500 it has paid out in holiday pay. The employee would receive no wages but £600 in holiday pay (i.e. the £2,100 available less the £1,500 paid to the RPO). 

41. Distributions where the insolvency date is on or after 15 September 2003

The RPO retains its preferential ranking but no longer has a super-preference status over the preferential claims of employees. The requirement for the RPO to be paid in full before the employee is paid was removed [Employment Rights Act 1996 s 189(4)].  However, the requirement to add together the RPO and employee’s preferential claims and treat them as one debt for the purpose of computing the preferential dividend remains [Employment Rights Act 1996 s 189(3)].  The need for apportionment between the Secretary of State’s and the employee’s preferential claims for wages arises because of the legal requirement for the claims to be treated as one for calculation of preferential debt statutory and the statutory limit on the amount payable, which is £800 on the wages payable in the 4 months immediately before the insolvency date.  Any debts that fall outside of the 4-month period are out of scope for preferential purposes and do not need to be added to the employees gross claim for calculation purposes.  The RPO would expect an amount equivalent to the percentage of the employees gross claim paid from the NIF on behalf of the employer.  For example, if the RPO has paid 25% of the debt then they can expect 25% of the dividend.

Originally it was thought that all claims would need to be apportioned but we discovered there was no need to do so in the following cases.

·          Holiday pay claims.  As there is no limit on the preferential amount that can be claimed for holiday pay, there is no need for apportionment - the RPO can claim the full amount as preferential as can the employee.

·          Wages claims: Apportionment is required only where an employee has a residual claim for wages in the insolvency.  Where the employee has no residual wages claim (RPO paid full debt from NIF) - the RPO can claim the full amount as preferential (subject to the £800 limit on wages).

·          Where the employees gross wages debt (including the amount paid by the RPO) is £800 or less then apportionment will not be required as the ultimate distribution will be the same whether or not apportionment is applied.

·          Any weeks of a protective award that fall after the insolvency date will be out of scope for preference, as they do not fall within the 4-month period prior to the insolvency date.

42. Example of Apportionment of wages

The employee' s gross claim against the employer is £2,000 (£4 weeks at @ £500 within the 4-month limit).

The RPO pays £1240 (4 weeks @ £310)

The employee’s residual claim is £760 (£2,000 less £1240 paid by the RPO).

The RPO has paid 62% of the debt and would therefore expect 62% of the £800 that is available to share between the employee and the RPO (on full dividend), which is £496. The same principle applies to a part dividend also.

Protective awards (PA) are treated as wages under ERA 1996 and Insolvency Act 1986, Schedule 6. The £800 limit on wages will apply to any period of a protective award that falls within the 4-month period before the insolvency date.  Only the gross wages for that period needs to be added to the employee’s gross claim for the calculation of the preferential amount due to the RPO.  Any period of the award that falls after the insolvency date is automatically non-preferential and should not be added to the gross claim to calculate preferential claims.

As a PA payment is made some con