Managing employees and stakeholders during liquidation

According to statistics from the Insolvency Service, liquidation rates in the UK in recent months have been on par with the 30-year high of 2023.

With so many companies facing the prospect liquidation, how to deal with stakeholders and managing employees in liquidation is a real concern for directors and employees alike.

The simple answer is having the expert guidance of an insolvency practitioner, in this case the liquidator.

Want to understand your options? Contact Irwin Insolvency without delay – call 0800 254 5122

Who does liquidation affect?

Liquidation affects more than the company owners and directors.

It also impacts on:

• Employees
• Creditors
• Suppliers
• Shareholders

Employee, creditor and supplier management by a company undergoing liquidation is an important legal requirement that your insolvency practitioner can guide you on.

Why is managing employees’ communication important during liquidation?

Managing employees in liquidation includes ensuring compliance with employee rights.

Liquidation legislation in the UK makes provision for employees and their financial entitlements during voluntary and involuntary liquidation.  

At a time when employees may be facing the loss of their livelihood, managing employees in liquidation wisely can make the difference between emotional, financial, and legal distress and a smooth transition through the liquidation process.

Communicating clearly and in a timely manner with employees about liquidation is an important part of the insolvency process and can help to build confidence that your company intends to honour employee rights, including any redundancy claims liquidation gives rise to.

What is best practice for managing stakeholders’ expectations?

At Irwin Insolvency, we encourage best practices for managing stakeholder expectations when a company is facing liquidation, including:

• Seeking guidance from a qualified insolvency expert to understand all options available to the company before making any decisions
• Prioritising stakeholder communication. Insolvency requires transparent and clear communication to avoid confusion and spread of misinformation.
• Following the liquidator employee guidance will ensure employees know their rights and that if the assets of the liquidated company are not able to meet their obligations, that specific redundancy claims: liquidation are available from the UK Government.
• Managing stakeholders’ expectations around the process, timeframes, professional and financial impact, redundancies, and payment times in liquidation can facilitate calmer, more ordered proceedings and reduce potential for claims of mismanagement being levied against company directors.
• Complying with all requests from the liquidator for information in a comprehensive and timely manner will help ensure all stakeholders are identified and considered proactively rather than potentially facing long and drawn-out conflict and proceedings.

What is the role of an insolvency practitioner in a company liquidation?

The Insolvency Act 1986 and Insolvency (England and Wales) Rules 2016, require that a registered insolvency practitioner be appointed as liquidator when a company is liquidated (the official receiver may be appointed by the courts in the case of involuntary liquidation).

What is the role of an insolvency practitioner in a company liquidation?

1. An insolvency practitioner first works with the directors to determine and advise the options available to a company seeking liquidation. In some cases, liquidation may not be the only (or best) outcome for the company, and an insolvency practitioner can break this down. Where liquidation is the most viable option, the type is determined – that is, creditors’ voluntary liquidation (CVL), or members’ voluntary liquidation (MVL) – and an insolvency practitioner works with the directors to understand their responsibilities. It’s also possible that a liquidation can be enacted by a court order against the directors’ wishes, known as compulsory (or court ordered) liquidation.
2. An insolvency practitioner uses their expertise and knowledge of legal processes to start the liquidation process. This will vary slightly depending on the type of liquidation, for example in members’ voluntary liquidation (MVL) the insolvency practitioner will assist the directors to prepare and submit a signed Declaration of Solvency to Companies House, along with the form and fee required for liquidation proceedings. In the case of creditors’ voluntary liquidation (CVL), the insolvency practitioner will also notify Companies House, but in this case it will be the liquidation of an insolvent company rather than a solvent one.
3. An insolvency practitioner will advise the legal requirements of the company directors, including statutory notice for employees and take on responsibility for managing employees in liquidation. This will include making available an RP1 Fact Sheet to employees outlining employee rights: liquidation UK and statutory redundancy claims liquidation may necessitate. These are important aspects of stakeholder communication insolvency They will give a case number to each employee that will be necessary for any claims arising from the liquidation.
4. An insolvency practitioner may be required to ascertain if any actions or inactions of the directors were responsible for the company’s insolvency and advise the Insolvency Service if this is the case.
5. An insolvency practitioner will liquidate the company’s assets.
6. An insolvency practitioner takes on creditor and supplier management as part of liquidating the company in a lawful manner. Once the company’s assets are realised, the liquidator will distribute any arising funds in the legally appointed order. That is, first, secured creditors such as banks, then second, preferential creditors such as employees and the HMRC, and finally unsecured creditors such as suppliers.
7. When all liquidation procedures are finalised, an insolvency practitioner will notify Companies House, publish a notice in the Gazette, and in due course the company will be struck off the Companies Register at Companies House (i.e. the company will cease to exist).

Next steps for liquidation

If your company is facing insolvency, or you’re considering a members’ voluntary liquidation to exit your company, the best next step is to contact the professional team at Irwin Insolvency.

With more than 25 years’ experience helping people with their financial complexities they are able to tailor advice to your company’s needs.

Call today to learn how Irwin Insolvency can help with managing employees