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So, now seems like a good time for a quick reminder of what redundancy means for directors and their employees.
You probably saw the news recently that the UK hospitality sector has taken another hit, with further pub and restaurant closures meaning potential job losses across some very well-known brands.
Whitbread, the owner of Premier Inn, has announced plans to close its remaining Beefeater and Brewers Fayre restaurants, with around 3,800 jobs expected to be affected as the business focuses more heavily on its hotel operations. The company has pointed to rising costs, tax pressures and a wider restructuring strategy as part of the reason for the closures.
At the same time, The Real Greek has also confirmed restaurant closures following administration, with nine sites closing and 151 jobs lost after a rescue deal preserved part of the business.
For the public, these stories are often seen as business headlines.
For the people involved, though, sadly, they are much more personal.
While the big names may hit the headlines, every closure can affect employees, managers, directors, families, suppliers and even communities. They also raise urgent questions in the minds of many people about redundancy, employee rights, director responsibilities and what happens when a business simply cannot afford to pay what is owed.
This is where clear advice matters.
When a business is under serious financial pressure, the best option is to understand exactly where you stand.
Redundancy is one of the hardest decisions any employer can face.
For employees, it can mean sudden uncertainty about income, mortgage payments, rent, bills and future work.
For directors, it can mean accepting that the business they have worked hard to build can no longer support the same number of staff or, in some cases, can no longer continue trading at all.
I appreciate that it is a bad situation for anyone, but in a very real way, hospitality can be especially difficult. Restaurants, pubs, cafés and hotels are people-heavy businesses run by Directors who are close the daily operations. Many are family run. Staff are often long-serving. Teams can feel like extended parts of the family, and directors may have worked alongside employees for years. A business in the hospitality world is often a close-knit community.
That makes redundancy emotionally difficult for everyone. We understand that, but if the company is struggling financially, directors also have legal duties to consider and honestly, in our long experience, it is better to take action than try to delay the inevitable. Waiting too long will almost certainly reduce the options available to you.
So, if you are looking at insolvency and closure, what happens next regarding redundancy?
Employees who are made redundant may be entitled to several different payments.
These can, but may not necessarily, include:
KEY POINT - To qualify for statutory redundancy pay, an employee normally needs at least two years’ continuous service.
The amount of statutory redundancy pay depends on:
Employees may also be entitled to a paid notice period when they are made redundant. If an employer becomes insolvent and the notice period is not worked or paid, employees may be able to claim statutory notice pay through the appropriate government process.
This is one of the biggest worries for both employees and directors. Simply put, in a solvent redundancy situation, the employer is expected to pay redundancy and other money owed.
However, if the company is insolvent and cannot afford to pay, employees may still be able to claim money through the Government’s Redundancy Payments Service. This may include redundancy pay, wages, holiday pay and notice pay. Employees of an insolvent business may be able to claim statutory redundancy pay, statutory notice pay, holiday pay and up to eight weeks’ unpaid wages through the Redundancy Payments Service.
I appreciate that this doesn’t remove all the stress of the situation, but it does mean employees may still have a route to claim certain payments, even where the company itself cannot afford to pay them directly.
When Smart Business Recovery is appointed as an IP, we do all we can to make sure that employees get the right information and their redundancy is resolved as soon as practical. However, be prepared for a waiting period while the finances are settled and their redundancy eligibility is assessed.
There is some good news here because directors often assume redundancy rights only apply to staff; however, that is not always the case.
A director may be able to claim redundancy if they were also an employee of the company.
This may apply where the director:
This can be particularly relevant in small and owner-managed hospitality businesses, where directors are often deeply involved in day-to-day operations.
A director in a hospitality setting may well have been running the kitchen, managing bookings, serving customers, managing staff, dealing with suppliers and working full-time in the business. In those circumstances, they may have employment rights as well as director responsibilities.
KEY POINT - Every case depends on the facts, so it is important to get proper advice before assuming anything either way.
Again, when we are appointed as the Insolvency Practitioner in an insolvency, we will look at whether the directors are eligible for redundancy where appropriate.
Sometimes redundancy happens because a business is restructuring. Sometimes it happens because a site is closing. Commonly, it happens because the company is insolvent or may soon become insolvent.
A limited company may be insolvent if it cannot pay its debts as they fall due, or if its liabilities are greater than its assets.
Warning signs for directors can include:
If redundancies are looking likely because the directors of the company see that it cannot afford to continue trading, it is sensible to speak to an insolvency practitioner as early as possible. This does not automatically mean the business will not close, but there may be options. If the directors delay, those options may be reduced.
KEY POINT - Once insolvency becomes likely, directors need to be careful. Their duties can shift and they need to be protecting creditors, and making decisions around continued trading, redundancy, payments and borrowing. All these must be handled properly.
If you are an employee affected by redundancy, it is sensible to gather information and keep records.
Employee redundancy checklist
KEY POINT - do not assume you have no rights just because the company has financial problems.
If you are a director considering redundancies, especially where the company is under serious financial pressure, the position needs to be handled carefully.
Director redundancy checklist
KEY POINT - The earlier you take advice, the more control you usually have over the next steps.
Many directors delay asking for help because they feel embarrassed, personally responsible, or overwhelmed, and that is completely understandable.
We have all the empathy in the world for your situation. No director wants to tell staff there may be redundancies. No business owner wants to admit the company may not survive. In hospitality, especially, where businesses are often built on personal relationships, regular customers and loyal teams, these decisions can feel brutal.
Sorry, as I said, we have empathy, and we understand, but the hard truth is that avoiding the situation rarely protects anyone and often makes the situation harder to deal with in the long run. In our experience, to reach the best outcome:
Employees need clarity.
Directors need to understand their legal position.
Creditors need to be treated properly.
If insolvency is likely, decisions need to be made with the help of professional advice. Early advice can help directors understand whether the company can be rescued, restructured, wound down in an orderly way, or even immediately cease trading in some circumstances. It can also help staff understand what they may be entitled to and where claims may need to be made.
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