STATEMENT OF INSOLVENCY PRACTICE S15B Dealing with Employee Claims Contents Paragraphs Introduction 1 4 Statutory Entitlements 5 6 Redundancy Payments Acts 1967 to 2003 7 11 Protection of Employees (Employers Insolvency) Act 1984 to 2001 12 14 Applications under the Insolvency Payments Scheme 15 22 Dealing with the Employment Appeals Tribunal 23 32 Additional Employee Claims 33 37 Advances to Employees 38 Social Welfare Status 39 Foreign Employees Based outside the Republic of Ireland 40 Effective Date 41 Appendices 1. Employee Preferential Statutory Entitlements. 2. Summary of Legislative Provisions Governing Employee Statutory Entitlements. 3. Employee Questionnaire. 4. Accountants Report Form T1A.
Dealing with Employee Claims S15B INTRODUCTION 1. This Statement of Insolvency Practice is one of a series issued by the Association of Chartered Certified Accountants to insolvency practitioners with a view to maintaining standards by setting out required practice and harmonising members approach to particular aspects of insolvency practice. 2. The purpose of Statements of Insolvency Practice is to set out basic principles and essential procedures with which insolvency practitioners are required to comply. Departure from the standards set out in the Statements of Insolvency Practice is a matter that may be considered by the Association for the purposes of possible disciplinary or regulatory action. 3. Insolvent companies for the purposes of this Statement are companies in liquidation or receivership. In the case of a company in examination statutory protection is restricted to entitlements under the Redundancy Payments Acts. 4. This Statement summarises the required practice to be adopted by the insolvency practitioner when dealing with claims from employees of insolvent companies. Its purpose is to: ensure members are familiar with the statutory provisions. provide guidance on dealing with the Department of Enterprise, Trade and Employment. provide guidance on dealing with the Employment Appeals Tribunal. consider practical issues arising from particular detailed aspects of employee claims. STATUTORY ENTITLEMENTS 5. Employees of insolvent companies are entitled to submit claims, subject to specified statutory limits and meeting the defined criteria, for: redundancy payments arrears of wages and salaries arrears of holiday pay payments in lieu of notice unfair dismissal awards arrears of sick pay arrears of superannuation contributions workmen s compensation / compensation for accidents. 6. Details of the relevant criteria and limitations together with the appropriate statutory references are set out in Appendix 1.
REDUNDANCY PAYMENTS ACTS 1967 TO 2003 7. The Redundancy Payments Acts 1967 to 2003 impose a statutory obligation on employers to pay compensation to employees dismissed for reasons of redundancy. This arises where an employee s job ceases to exist and he or she is not replaced for such reasons as the financial position of the firm, because there is not enough work, the firm closes down altogether, or because of reorganisation. 8. Before making an application for payment the employee contract needs to be terminated with the insolvent employer and a redundancy certificate (Form RP1) and Form P45 issued to the employee. It is advisable that all employees are circulated with a questionnaire in order to determine the rights and entitlements of each employee under the various statutory provisions. An example questionnaire is reproduced in Appendix 3. 9. An employee is entitled to redundancy under the Redundancy Payments Acts and should be invited to complete Form RP2. The insolvency practitioner may be required to sign the form, which is a declaration on behalf of the insolvent employer, if the form has not been completed by the employer. The insolvency practitioner, when making such declarations, compares the data therein with the information contained in the books and records of the insolvent company. 10. Applications for payments under the Redundancy Payments Acts are made by employees on Form RP14 and accompanied by the completed redundancy certificate RP2 and copy of Form RP1. 11. Payments made under the Redundancy Payments Acts are made directly to the employee. The insolvency practitioner will receive notification of payments made accompanied by a claim against the company in respect of 40% of the payments made by the Department of Enterprise, Trade and Employment, as a preferential creditor. PROTECTION OF EMPLOYEES (EMPLOYERS INSOLVENCY) ACTS 1984 TO 2001 12. This Act affords protection to certain outstanding entitlements of employees in the event of their employer becoming insolvent. Where the employer is a company, within the meaning of Section 2, Companies Act 1963, the date on which it is regarded as having become insolvent is: (a) Where either a receiver is appointed on behalf of a holder of any debentures secured by a floating charge, or possession is taken by or on behalf of such a debenture holder of any property of the company comprised in or subject to the charge, the relevant date will be the date of the appointment of the receiver or of possession being taken as aforesaid; or
(b) In any other case the relevant date is as determined by Section 285, Companies Act 1963. 13. Where an employer is insolvent, the employees may make a claim for the payments due to them from the Social Insurance Fund. These payments include: arrears of wages, holiday pay, or sick pay; statutory minimum notice entitlement; payment contributions under occupational pension schemes; awards of compensation under the Unfair Dismissals Acts 1977 to 1993, or under the employment equality legislation (including equal pay); any amount an employer is required to pay by virtue of an employment regulation order made under the Industrial Relations Act 1946. 14. Appendix 2 sets out the main statutory provisions under which employees are entitled to claim under current legislation. APPLICATIONS UNDER THE INSOLVENCY PAYMENTS SCHEME 15. The Insolvency Payments Section of the Department of Enterprise, Trade and Employment is the statutory body which deals with payments from the Social Insurance Fund under the Protection of Employees (Employers Insolvency) Acts. Payments are on the basis of applications made by employees of insolvent companies, either directly or by insolvency practitioners submitting a claim in the appropriate format on the employees behalf. 16. Employees should be invited to complete Form EIP1 in respect of wages holiday pay minimum notice entitlement sick pay Form EIP 4 is completed in respect of all other entitlements. 17. Insolvency practitioners in receipt of completed Forms EIP1 and EIP4 are required to complete Form EIP3, which summarises all employee claims under the various headings. 18. The Department requires a copy Notice of Appointment from the receiver/liquidator where a claim is being submitted to the Social Insurance Fund. 19. The insolvency practitioner, referred to as the relevant officer, is required to make a declaration to the Minister of Enterprise, Trade and Employment in the prescribed format, that he or she has accepted the entitlements of the employees on the basis of information made available to him or her. The declaration also incorporates consent for
enquiries to be made of other government departments in order to verify the employee s claim. The insolvency practitioner is also required to formally declare that the company is insolvent and that there are no funds available to enable entitlements to be paid by the insolvent company. 20. Payments made in respect of claims submitted on Form EIP3 will be made payable to the insolvency practitioner, who is in effect a trustee. When distributing payments to the relevant employees the insolvency practitioner must apply emergency tax and employee s PRSI to all payments made other than payments made on foot of awards determined by the Employment Appeals Tribunal, which are generally paid without deduction of tax. 21. Where tax and PRSI is being deducted from payments made the insolvency practitioner should include a Supplementary P45 with each payment. The tax and PRSI deducted should be remitted to the Liquidation Section, Office of the Collector General. 22. Payments made by the Insolvency Payments Section become subrogated preferential claims against the relevant company in liquidation. DEALING WITH THE EMPLOYMENT APPEALS TRIBUNAL 23. The Employment Appeals Tribunal was established under Section 39, Redundancy Payments Act 1967. The Tribunal consists of a chairman, 22 vice-chairmen with legal qualifications, together with a panel of 60 ordinary members, 30 nominated by the Irish Congress of Trade Unions and 30 by the Irish Business and Employers Conference. 24. Claims and appeals are heard in public, unless the Tribunal at its discretion decides that the hearing should be held in private. The Department of Enterprise, Trade and Employment gives administrative support to the Tribunal. 25. Employees of an insolvent company are entitled to make an application to the Employment Appeals Tribunal under various statutory provisions, as set out in Appendix 2. In an insolvent situation applications are more typically in respect of claims made under the Minimum Notice and Terms of Employment Acts 1973 to 2001, where the amount of the claim is in dispute. 26. Employees referring a claim to the Employment Appeals Tribunal are asked to complete Form T1-A. The insolvency practitioner forwards the completed forms T1-A to the Employment Appeals Tribunal. The effect of submitting the completed forms is to call a Tribunal. 27. Employees of an insolvent company can make an application directly to the Insolvency Payments Section and, in so doing, choose not to make an application to the Employment Appeals Tribunal. The Insolvency Payments Section is empowered since 6
April 2004 to make payments on such direct applications where the facts are not in dispute. 28. Before the Tribunal can decide on any facts put forward under the Acts it must establish that the facts, as set out on the relevant form T1-A, are correct. A standard form of accountants report has been prepared and agreed between the Consultative Committee of Accountancy Bodies-Ireland ( CCAB-I ) and the Tribunal for completion by the insolvency practitioner in respect of the claim, where the facts are not in dispute. An example of this report is contained in Appendix 4. In respect of claims where the facts are in dispute the insolvency practitioner should indicate the matters of fact which are not agreed. 29. The Tribunal will furnish the insolvency practitioner with the statutory notice (Form T2) for every claim. It is essential that these forms are completed, where possible, by the insolvency practitioner within the statutory time period. In circumstances where the claim/s made by the relevant employees are in dispute, Form T2 gives the insolvency practitioner the opportunity to indicate if he or she or a representative will appear at the Tribunal. 30. When an award is made by the Tribunal the insolvency practitioner will be provided with a copy of the decision of the Tribunal and will be given an opportunity to appeal against the decision. 31. Following the making of the award the insolvency practitioner can make an application to the Insolvency Payments Section of the Department of Enterprise, Trade and Employment on Form EIP3. 32. Payment of awards granted by the Employment Appeals Tribunal are generally paid without deduction of tax. ADDITIONAL EMPLOYEE CLAIMS 33. Payments made by the Insolvency Payments Section are subject to a statutory ceiling which is currently 507.90 per week (April 2003) in respect of each separate statutory entitlement claim. 34. In many cases employees will have claims in respect of additional amounts due which are in excess of the statutory ceiling. Some claims will continue to have preferential status while others will be dealt with as unsecured claims against the company. 35. Where any such additional claim is preferential it can only be paid to employees once the insolvency practitioner has repaid in full amounts paid by the Insolvency Payments Section. 36. The status of employee preferential entitlements is set out in Appendix 1.
37. Claims by an employee for compensation in lieu of notice, which is in excess of the statutory minimum entitlement, are unsecured claims against the company. ADVANCES TO EMPLOYEES 38. There are no circumstances in which advances to employees made by the insolvency practitioner can be deducted from payments due to the employees received from the Insolvency Payments Section. Funds received from the Insolvency Payments Section should be disbursed to the employees and/or the Collector General, as appropriate, without deduction. Advances, loans, etc., to employees from insolvency practitioners are not accepted by the Department as forming part of the employees preferential entitlements under the Acts. SOCIAL WELFARE STATUS 39. Where there is a doubt as to an individual s social insurance status as an employee his/her eligibility may be determined by whether and at what rate PRSI contributions were paid in respect of the individual. In many instances the Insolvency Payments Section will refer the matter to the Scope Section of the Department of Social, Community and Family Affairs. An inspector will consider the facts of each case before making a decision. The insolvency practitioner may be invited to complete a questionnaire by the inspector. There is an appeal procedure available to employees who are dissatisfied with a decision by an inspector. FOREIGN EMPLOYEES BASED OUTSIDE THE REPUBLIC OF IRELAND 40. As has been determined by the Court of Justice of the European Communities, notably in the Bell Lines case, in circumstances where there are foreign-based employees of a company registered in another member state, the statutory body responsible for paying the statutory redundancy and related entitlements of those employees is determined as the authority to which tax and social welfare deducted from the employees has been paid over. EFFECTIVE DATE 41. This Statement is effective from 1 May 2005.
APPENDIX 1 Employee Preferential Statutory Entitlements Title Description Basis EMPLOYEES 1. Wages and Salaries Wages and salaries (including commission and piece work) for services rendered by any clerk, servant, workman or labourer, including remuneration in respect of periods of absence from work through good cause, in the four months before the relevant date, subject to a maximum of 3,174 per individual (April 2003). This includes lump sums due to farm labourers. S.285 (2)(b) & (c) & (4) CA 1963 S.10 (b) & (d) CAA 1982 Directors' fees per se are not preferential and care should be taken before admitting other amounts due to Directors or the Company Secretary. Items such as VHI, union, or savings deductions can be preferential in so far as they fall within the general limit of 3,174 per employee (April 2003). 2. Holiday pay All accrued holiday pay no money or time limit. 3. Pay in lieu of notice Legal advice should be obtained where holidays are outstanding for periods prior to the current holiday year as defined in the company's condition of employment. The position of Directors or the Company Secretary should again be considered. Any compensation awarded by the Employment Appeals Tribunal following a submission on behalf of the employee on Form T 1A. 4. Redundancy Statutory redundancy lump sums (less 60% rebate from Department of Enterprise, Trade and Employment). 5. Unfair dismissal Compensation awarded by Employment Appeals Tribunal under Unfair Dismissals Act, 1977, following application by employee. 6. Sick pay Sums due to an employee pursuant to any sick pay scheme. 7. Superannuation contributions 8. Workmen's Compensation Company contributions and contributions deducted from employees in respect of any superannuation scheme. (This matter is complex and great care should be exercised before admitting claims) Compensation under the Workmen's Compensation Acts, 1934 to 1955, to the extent that it is not covered S.285 (2)(d) CA 1963 HEA 1973 S.13(1) MNTEA 1973 S.14 RPA 1979 S.14(5) RPA 1971 S.12 UDA1977 S.10(a) CAA 1982 S.10(a) CAA 1982 S.285 (2)(f) and (5) CA
by insurance (including lump sums equivalent of weekly payments). 9. Compensation Damages and costs due to an employee for accident as a result of an accident to the extent that it is not covered by insurance. 10. Subrogated claims a) Subject to limitations, money advanced to pay wages, salaries, holiday pay, sick pay or 1982 superannuation contributions by a bank or third party. b) Payments from the Employers' Insolvency Fund in respect of claims which would rank as preferential. The Fund is entitled to be repaid in priority to any other unsatisfied claim of the employee. Abbreviations of Legislation 1. CA 1963 Companies Act, 1963 2. CAA 1982 Companies (Amendment) Act, 1982 3. HEA 1975 Holidays (Employees) Act, 1973 4. MNTEA 1973 Minimum Notice and Terms of Employment Act, 1973 5. PEEIA 1984 Protection of Employees (Employers 'Insolvency) Act, 1984 6. RPA 1967 Redundancy Payments Act, 1967 7. RPA 1971 Redundancy Payments Act, 1971 8. RPA 1979 Redundancy Payments Act, 1979 9. UDA 1977 Unfair Dismissals Act, 1977 1963 S.285 (2)(g) CA 1963 S.285 CA 1963 S.10(c) CAA PEEIA 1984
APPENDIX 2 Summary of Legislative Provisions governing Employee Statutory Entitlements The Department of Enterprise, Trade & Employment has issued booklets commenting on the more significant provisions of many of these Acts. Redundancy Payments Acts 1967 to 2003 1. An employee with 104 weeks continuous service whose employment is terminated because of redundancy is entitled to a redundancy lump sum payment. A redundancy situation arises where an employee s job no longer exists and he/she is not replaced. 2. When an employee is entitled to a statutory redundancy payment and has taken all reasonable steps (excluding legal proceedings) to obtain the payment, but the employer refuses or fails to pay, he or she may apply to the Department of Enterprise, Trade and Employment for payment. 3. Disputes regarding entitlements under the Acts may be referred to the Employment Appeals Tribunal. Minimum Notice and Terms of Employment Acts 1973 to 1991 4. An employee with continuous service with the same employer for at least 13 weeks is entitled to a minimum period of notice of termination of employment. The minimum notice required ranges from one week after 13 weeks continuous service up to eight weeks for 15 years service or more. The employee can be given notice to work out, or be paid in lieu, or given a combination of both. Unfair Dismissals Acts 1977 to 2001 5. Employees generally with at least one year s continuous service can, if they feel they have been unfairly dismissed, have their case heard by either a Rights Commissioner or by the Tribunal. Where the claim is determined by a Rights Commissioner, that decision may be appealed by either party to the Tribunal. 6. There are a number of exceptions to the general requirement for one year s continuous service: (a) dismissal on the grounds of proposed membership/membership of a trade union or trade union activity. (b) dismissal on grounds of pregnancy.
(c) a Rights Commissioner or the Employment Appeals Tribunal may consider whether the employment of a person on a series of two or more contracts of employment, between which there was no more than 26 weeks of a break, was for the purpose of avoidance of liability by the employer under the Acts. Where it is so found, the length of the various contracts may be added together to assess the length of service of an employee for eligibility under the Acts. (d) dismissal on the grounds of the exercise or proposed exercise by an employee of the right to protective leave or natal care absence under the Maternity Protection Act 1994. (e) dismissal on the grounds of the exercise, or the contemplated exercise, of the rights to adoptive leave or additional adoptive leave by the employee under the Adoptive Leave Act 1995. (f) dismissal on the grounds of the exercise, or the contemplated exercise, of rights under the Carer s Leave Act 2001. 7. Persons engaged through employment agencies are covered by the scope of the legislation. For the purposes of the Unfair Dismissal Acts, the party hiring the individual from the employment agency is deemed to be the employer. For other legislation, it is generally the person liable to pay the wages, whether employment agency or client company. Protection of Employees (Employers Insolvency) Acts 1984 to 2001 8. This Act affords protection to certain outstanding entitlements relating to the pay of employees in the event of their employers becoming insolvent. For the purposes of this Act the date on which an employer is regarded as having become insolvent is: (a) where the employer has been adjudicated bankrupt, the date of such adjudication. (b) where the employer petitioned for arrangement, the date on which the petition is filed. (c) where the employer executed a deed of arrangement referred to in Section I (3)(a) of the 1984 Act, the date of such execution. (d) where the employer has died, the date of his death. (e) where the employer is a company within the meaning of Section 2 of the Companies Act 1963: (i) where either a receiver is appointed on behalf of a holder of any debenture secured by a floating charge, or possession is taken by or on behalf of such a debenture holder of any property of the company comprised in or subject to the charge, the relevant date will be the date of the appointment of the receiver or possession being taken as aforesaid, or (ii) in any other case the relevant date within the meaning of Section 285, Companies Ac, 1963.
9. Where an employer is insolvent, employees may make a claim in respect of the payments due to them from the Social Insurance Fund. These payments include arrears of wages, holiday pay, minimum notice, sick pay, payment of contributions under occupational pension schemes, awards of compensation under the Unfair Dismissals Acts or under the employment equality legislation (including equal pay), and any amount an employer is required to pay by virtue of an Employment Regulation Order made under the Industrial Relations Act 1946. 10. An employee may refer a dispute to the Tribunal regarding the Minister s decision in relation to arrears of wages, holiday pay, minimum notice, sick pay, or unpaid contributions to occupational pension schemes. The Minister may refer any matter to the Tribunal for decision. 11. The Department claim is preferential, regarding amounts paid from the Social Insurance Fund, in respect of wages due to the employee from the employer in respect of the period prior to the appointment of the receiver/liquidator. The Department shall rank ahead of the employee to the extent of the monies paid out from the Social Insurance Fund and must be reimbursed in full before any further preferential payments are made to that employee. 12. The High Court decided that where employers deducted union dues, private health scheme contributions, saving scheme deductions, etc., and such sums were not paid over for their designated purpose, such deductions would be regarded as normal weekly remuneration and covered under this Act. The Minister shall rank as a preferential creditor for such amounts as paid over from the Social Insurance Fund in respect of these deductions. 13. An employee may also submit a claim in respect of outstanding contributions to occupational pension schemes which an employer deducted from wages, but had not paid over to the scheme, at the date of insolvency. Unpaid contributions to an occupational pension scheme on an employer s own account may also be claimed subject to certain limits. Claims may be submitted in respect of outstanding pension contributions for up to a year prior to the date of insolvency of the employer. Where employer s contributions are claimed, an actuarial certificate is required. 14. Where a receiver/liquidator is appointed to a company which is itself a trustee of a pension scheme, the insolvency practitioner should seek appropriate independent actuarial advice prior to making any decisions pertaining to the scheme in conjunction with the other scheme trustees. Social Welfare Acts 15. Employees PRSI contributions deducted but not paid over rank as Super Preferential in determining distributions in accordance with Section 7, Social Welfare (No. 2) Act 1976.
Payment of Wages Act 1991 16. Under this Act an employee may refer complaints to a Rights Commissioner (and he/she can subsequently appeal to the Tribunal) in relation to, for example, an unlawful deduction from wages (or requiring an unlawful payment) including non-payment of wages. Terms of Employment (Information) Act 1994 17. An employee may appeal the recommendation of a Rights Commissioner to the Tribunal in relation to a complaint concerning the requisite statement of the terms of employment. Maternity Protection Act 1994 18. Where a female employee is in employment of a type defined in Part I of the First Schedule of the Social Welfare (Consolidation) Act, 1981, she is entitled to a minimum maternity leave of 18 weeks + 8 weeks of additional maternity leave (increased from March 2001). Following maternity leave, provided she gives her employer at least four weeks written notice of the date on which she expects to return to work, the employee is entitled to return to her old job with her employer (or with the new employer if the business has changed hands), or to suitable alternative employment if it is not practical to return to the old job. 19. Disputes concerning entitlement, except those relating to health and safety matters, may be referred to a Rights Commissioners and on appeal to the Employment Appeals Tribunal. If the dispute relates to the dismissal of an employee, it is dealt with under the Unfair Dismissals Acts 1977 to 2001. Adoptive Leave Act 1995 20. An employee may appeal the decision made by a Rights Commissioner under this Act to the Tribunal. Parental Leave Act 1998 21. An employee may appeal to the Tribunal from a decision made by a Rights Commissioner under this Act. Protection of Young Persons (Employment) Act 1996 22. The parent or guardian of a child or young person may appeal the decision of a Rights Commissioner that an employer had not contravened Section 13 (preservation of
existing rates of pay and conditions) or Section 17 (refusal to co-operate with the employer in breaching the Act). Such appeal may be made to the Tribunal. Organisation of Working Time Act 1997 (Holidays and Public Holidays) 23. Employees may refer holiday and public holiday entitlements to a Rights Commissioner and Labour Court on appeal (or Employment Appeals Tribunal if they have another case there at the same time). European Communities (Protection of Employees) Regulations 2000 24. Employees may refer complaints to a Rights Commissioner regarding noncompliance by the employer with the information and consultation provisions of the Protection of Employment Act 1997 (Sections 9 or 10) regarding the collective redundancies. European Communities (Safeguarding of Employees Rights on Transfer of Undertakings) Regulations 1980 and 2000. 25. Employees may refer complaints to a Rights Commissioner regarding noncompliance by the old employer with the information and consultation provisions of those Regulations in a transfer of undertaking situation. Protection of Employees (Part-time Work) Act 2001 26. This Act, which repealed and replaced the Worker Protection (Regular Part Time Employees) Act 1991, removed the 8 hours threshold for part-time employees, to have access to some pieces of employment legislation. The legislation provides that part-time workers may not be treated less favourably than full-time workers.
APPENDIX 3 Employee Questionnaire Name and Address: Date of birth: Contact telephone numbers: Home: Work: Mobile: PPS number: Social insurance class: Brief job description: Date of commencement: Date of cessation: Did you receive a P45? Yes: No: (Please attach a photocopy) Are you now, or have you ever been, a director or shareholder? Yes: No: If yes, please provide details: Are you currently employed? Yes: No: If yes, please provide the following information: 1. Date of commencement 2. Current weekly gross pay If you are claiming arrears of wages or holiday pay please provide the following information:
1. Basic weekly gross pay 2. Details of any bonus arrangements 3. Annual holiday entitlements in days. 4. Number of days due If you are claiming redundancy and you have been employed by a connected business prior to commencement with this company you may be entitled to additional years of service. Please provide full details. Please sign: Date:
APPENDIX 4 Accountants Report The attached Forms T1A, which I have initialed for the purposes of identification only, are in accordance with the books and records of the company to which I have had access and the information contained in those forms is consistent with the information and explanations provided by those members of management with whom I have had discussion. A N Other Receiver/Liquidator XYZ Ltd (In Receivership / In Liquidation)