What happens when a business needs to make redundancies but it can’t afford the payments?

Quantuma Partner, Maxine Reid-Roberts advises


by Maxine Reid-Roberts

There may be help at hand.

Given the current economic climate there has been and continues to be much conversation around the Job Retention Scheme (JRS) which has now been extended to October 2020. 

This lifeline from the Government has been a welcome relief at a time when many businesses may have had to resort to making staff redundant due to either not being able to trade or the downturn in trade having a catastrophic impact on turnover. 

There is a concern amongst employers that once this scheme comes to an end, and unless trade returns back to previous levels, businesses may encounter a problem in making employees redundant. This is likely to be because the payments they would need to make in respect of redundancy pay would be unaffordable.

It may be this dilemma that leads employers to conclude that the business could be insolvent if it is unable to source additional funding in order to make the redundancy payments. 

There is however the prospect of obtaining financial assistance from the Insolvency Services’ Redundancy Payments Service (RPS). Assuming that the business meets the necessary criteria, if approved, the RPS would make the statutory redundancy payments directly to the redundant employees. Should an employee’s contract of employment give rights to additional, non-statutory redundancy pay, this would not be dealt with by the RPS. 

The RPS payments are subject to the statutory limits and any employer, provided they are not already subject to insolvency proceedings, can apply. 

Payments in respect of arrears of pay, holiday pay, or notice pay are not able to be paid by the RPS unless the employer enters into formal insolvency proceedings.  

The monies advanced are not a grant and they would need to be repaid by the employer. However, it would be advanced on an interest-free basis. 

Employers should of course remember that when considering making redundancies, the usual consultation rules apply. 

Whilst this financial assistance could be available from the RPS, if this option is not viable for other reasons, it may be necessary to consider whether compromise agreements could be reached as an alternative. 

In the current climate that we find ourselves in, we are speaking to many business owners who are trying to navigate through these very uncertain and unprecedented times. The above suggestions are clearly not exhaustive and some options will of course only apply to certain businesses. 

For more information, or if you wish to discuss this further please do not hesitate to contact Maxine Reid-Roberts directly.