When a long-standing UK business faced HMRC action and redundancy fears, the right advice made all the difference. Chris Worden explains how directors can protect staff and themselves in insolvency situations.
- Most businesses fail due to unforeseen events, not poor management.
- Panic, not debt, often leads directors to make costly mistakes.
- Redundancy payments can be covered by the government in insolvency.
- Administration or liquidation can protect staff and directors if handled correctly.
- Seek advice early to avoid personal liability and maximise outcomes.
Case Study: 25-Year-Old Business Facing HMRC Winding Up
This real case involved a manufacturing business with 45 staff, trading for decades. A cancelled order caused a cash flow crisis, leading to missed HMRC payments and a winding up petition threat.
The Directors' Main Fear
The directors worried most about paying redundancy for long-serving staff, not about losing the company itself. Many directors wrongly believe redundancy must be paid from company funds, leading to risky decisions.
What Actually Happens in Insolvency?
In liquidation or administration, statutory redundancy is paid by the government via the Redundancy Payments Service (RPS), not by directors personally. This covers redundancy pay, arrears of pay, holiday pay, and notice pay.
Choosing the Right Process
Liquidation wasn't the first step. Because the business had assets, administration offered a better return to HMRC and protected staff. The process was transparent, with administrators realising assets and supporting employees through the RPS.
Staff and Directors Protected
Staff received their entitlements through the RPS. Directors, as employees, also claimed redundancy. Cooperation with administrators ensured assets were sold properly and creditors received more.
Key Lessons for Directors
- Don't panic or take on more debt to pay redundancies.
- Seek advice as soon as you can't pay suppliers or HMRC.
- Understand your options: administration, liquidation, and personal guarantees.
- Handled correctly, insolvency protects staff and directors from worse outcomes.
Key Takeaways
- Redundancy payments are covered by the government in insolvency.
- Early advice prevents costly mistakes and personal liability.
- Administration can protect staff and maximise returns for creditors.
- Chris Worden and Director First can guide you through the process.
Frequently Asked Questions
- What happens if my business can't pay HMRC?
- If you can't pay HMRC, seek advice immediately. Options like administration or liquidation can protect you and your staff.
- Who pays staff redundancy in insolvency?
- The government, via the Redundancy Payments Service, covers statutory redundancy, not the directors personally.
- Can directors claim redundancy?
- Yes, if directors are employees on PAYE, they may be eligible for redundancy payments in insolvency.
- Is administration better than liquidation?
- Administration can offer better outcomes for creditors and staff if the business has assets or value to realise.
- What should I do if facing a winding up petition?
- Contact an insolvency expert like Chris Worden at Director First as soon as possible to discuss your options.
