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Insolvency Payments Scheme helping employees
07 May 2010
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What happens when your employer goes bust but leaves you chasing unpaid wages or holiday arrears? Big banks have the resources to pursue companies through the commercial courts over unpaid debts, but what options are available to employees left in the lurch? Claire Hartnett talks to Eileen O'Carroll, Assistant Principal Officer in the Insolvency Payments Section of the Department of Enterprise, Trade and Innovation.
With the numbers on the live register now standing at 13.4 per cent of the population, and corporate insolvencies continuing to rise, the number of employees owed money by insolvent employers is growing too.
Help is at hand though.
The Insolvency Payments Section of the Department of Enterprise, Trade and Innovation is responsible for reimbursing employees if the company they're working for becomes insolvent. Unsurprisingly, the department has seen a massive surge in claims from employees in the past three years – the total amount of claims paid out has risen by 205 per cent from 6,609 in 2007 to 20,172 last year.
But despite this increase, and the public service recruitment freeze, the department has prioritised such payments and is doing its best to ensure employees aren't left out of pocket for too long.
Established in 1984 under the Protection of Employees (Employers' Insolvency) Act, the Insolvency Payments Scheme uses money from the Social Insurance Fund to pay employees left high and dry when the company they're working for is placed in liquidation.
It's separate from the Redundancy Payment Scheme – which provides employees with statutory redundancy payments if their employer can't pay – and allows employees to claim back money owed to them by insolvent employers such as unpaid wages, holiday pay, pension contribution arrears or even awards for unfair dismissal or discrimination.
"The purpose of the scheme is to protect pay-related entitlements when jobs are lost through insolvencies," explains O'Carroll.
The way the scheme works is simple. If an employee is out of pocket because their company goes bust, a claim is made by the liquidator on behalf of the employee to the Insolvency Payments Scheme. If the employee is eligible, the scheme will reimburse the money owed to the employee from the Social Insurance Fund.
"We claim money from the Social Insurance Fund," says O'Carroll, "and if we receive any recoveries of this money, it's paid back into the fund."
The most common claims the department gets are for arrears of wages, holiday pay, sick pay or unpaid pension contributions, according to O'Carroll, and a payment ceiling of €600 per week is imposed on wage-related claims.
The legislation is strict about what constitutes an insolvent company, however, and the department requires documentation including the notice of the appointment of a liquidator or receiver and a statement of affairs. In short, claims won't be paid out from the scheme without a declaration by the liquidator that there are no funds to meet employees' claims.
Once a claim is paid out, the Minister for Enterprise, Trade and Innovation then becomes a preferential creditor of the company. Sometimes, when the liquidator has disposed of the company's assets, the scheme will recover the money it has paid to the employee which is then put back into the Social Insurance Fund.
"A liquidator might have no funds at the beginning of the liquidation process to pay employee claims but if certain assets are disposed of, we may receive payment at the end of the process," explains O'Carroll.
It's usually rare for creditors to recoup the total value of the money owed to them in a liquidation. The Insolvency Payments Scheme is no different, and O'Carroll admits that the sums of money recovered by the scheme aren't usually significant – last year, only €2.7 million of a total €20 million paid out was recovered by the scheme from liquidations.
With insolvency rates soaring, it's little wonder that O'Carroll's department has seen a huge surge in claims.
"The current economic circumstances have resulted in a significant rise in company insolvencies which has created a significant increase in claims," says O'Carroll.
The number of claims ballooned in the past three years, up from 6,609 in 2007, to 9,704 in 2008 while 20,172 claims were processed and paid last year.
The amounts paid out have increased too. €5.7 million was paid out in claims in 2007, that figure jumped to €10 million in 2008 and doubled last year to €20 million.
"The last quarter of 2008 was when the surge really started," says O'Carroll. "In the last six months we've had an average of 1,700 claims per month, the figures fluctuate monthly, but the trend is continuing to increase - in March 2010 we had 2,509 claims."
The insolvency section, however, is tackling the huge increase in claims and processing times for the payment of claims have actually decreased rather than increased since June last year.
"We've undertaken a number of initiatives to deal with the increase in claims," says O'Carroll.
The Department of Enterprise, Trade and Innovation has prioritised insolvency payments and O'Carroll's section has been designated a front line area of the department. Despite the recruitment embargo in the public sector, the number of staff working in the insolvency payments section has increased from nine to sixteen, with staff reassigned from other sections of the department to help O'Carroll and her team cope with the surge in claims.
The initiatives seem to have worked and processing times for claims have fallen from 25 weeks in June 2009, to the current 12-14 weeks.
"We are conscious that this is still a long time for people who are unemployed to be waiting for payment owed to them so we're always trying to increase the processing and payment times. Currently we're processing claims from February and we're constantly monitoring the figures. 12 − 14 weeks is not as good as we'd want but it's a significant reduction in the processing times before."
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