Business Closing, suddenly going insolvent due to redundancy payments

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cremeegg

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A friend of mine has run a business through a Limited Company for many years. It is a small retail business, with 10 employees, some part time. After paying my friend a good wage over the years the company has made very little profit. A nice lifestyle business.

However the landlord has said that the lease will not be renewed, other premises are extremely expensive and difficult to get. My friend was happy to retire/work part time elsewhere. There was no question of insolvency all taxes and expenses of the business would easily be covered. My friend expected to walk away with a little money, a bit less than a years wages.

Then redundancy payments for the staff were mentioned. As many of the staff have been there for years the amount involved is significant, way more that the assets can cover.

My friend is having a big emotional reaction. "I will be bankrupt. I will be arrested"

Can anyone shed any light on this situation. It seems surprising that a modest business which has traded satisfactorily for many years cannot be closed without going insolent, even though it can comfortably cover all its regular costs.

Any advice welcome.
 
1) Your friend will not be arrested . there is no crime being committed,
2) The company will go into liquidation - it happens all the time. It's highly unlikely that he would be personally liable unless he has intentionally traded while insolvent.
3) He should talk to an insolvency practitioner who will advise on how best to wind it down in an orderly fashion.

I understand that he will sell all the assets and pay his creditors.
He will make the staff redundant.
He will pay them what he can in statutory redundancy.
The Government will pay the balance

Brendan
 
It is a serious problem for good employers who have treated staff well over the years and so many have long service.

They often face a dilemma that it's no longer profitable to trade but it's very expensive to close down because of the redundancy payments.

Your friend is ok. But a people who did not trade through limited companies are personally responsible for the huge redundancy payments.

Brendan
 
Dept of social protection can pay the redundancy on behalf of a company that can show inability to pay.

They usually look for it to be repaid, but can, at their discretion not look for repayment

Details are here https://www.gov.ie/en/service/78213a-redundancy-payments/

Ideally an accountant would do this.

Your friend also has statutory rights to redundancy pay.
 
Reading the OP really got under my skin. Here's a business person who has built a company, employs people and by extension supports families, other businesses, is tax compliant and is essentially being put out of business " on a whim".

Its disgusting, but that is the way things are in this country, hard work seems to punished at every juncture.

I really wish that person the best and I hope that he/she ends up with something after everything, and hopefully they get everything they are entitled to.

Had to get that off my chest.
 
Are the staff related to him, family memebers etc?

How is the redundancy veing calculated and how much are we talking?
 
His first step should be to calculate how much he owes. As an example, if the average wage bill per employee was €400 a week and the average service was 8 years then he would be looking to fund around €70k unless he was silly enough to put large redundancy payments into staff T&C's

is selling the business as a going concern an option, then staff would transfer over under TUPE
 
Thanks for all the replies.
jim said:
Are the staff related to him, family memebers etc?
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None of the staff are related to the owner.

Peanuts20 said:
His first step should be to calculate how much he owes. As an example, if the average wage bill per employee was €400 a week and the average service was 8 years then he would be looking to fund around €70k unless he was silly enough to put large redundancy payments into staff T&C's
Click to expand...
That is approximately the situation, maybe closer to €90k as the longer serving staff are on the full €600 per week.

Brendan Burgess said:
Your friend is ok. But a people who did not trade through limited companies are personally responsible for the huge redundancy payments.
Click to expand...
That is a really scary thought. Liability for redundancy was never considered in the decision to set up a company!
 
Personally I find it quite shocking that an employer seems totally unaware of their obligations. Sounds like he has a number of very loyal staff and they have a right to redundancy. Would it be common for small business owners to be totally unaware? Seems really strange that this was never given a thought.
 
Brendan Burgess said:
@peemac

Does that apply to individuals who trade outside limited companies?
Click to expand...
Looks like they can.

"A sole trader is personally responsible for these redundancy payments - but if he's unable to pay, he can contact the Department of Social Protection (DSP) and come to an arrangement to have DSP pay the redundancy. However, if coming to such an arrangement with the DSP, the sole trader will need a letter from his accountant saying he doesn't have enough cash to pay the redundancy. "
 
dubdub123 said:
Personally I find it quite shocking that an employer seems totally unaware of their obligations. Sounds like he has a number of very loyal staff and they have a right to redundancy. Would it be common for small business owners to be totally unaware? Seems really strange that this was never given a thought.
Click to expand...
I think someone running a business never wants to think of closure.
Entrepreneurs are generally positive people. Too positive for their own good sometimes.

Up to 2013 a business could claim 60% of the statutory redundancy payment back, so it was not a huge burden. But many business owners may not know that this rebate is no longer available, thus a bit of a shock as seems to have happened in the situation here.
 
dubdub123 said:
Personally I find it quite shocking that an employer seems totally unaware of their obligations. Sounds like he has a number of very loyal staff and they have a right to redundancy. Would it be common for small business owners to be totally unaware? Seems really strange that this was never given a thought.
Click to expand...
The company appears to be operating profitably, the landlord isn't renewing the lease. If the owner has paid the rent for the length of time they operated why is the company been kicked out of the property.

No business that is operating making profits, paying staff and all taxes associated with the business would think about redundancy payments. In fact if there were cash positive theyd be looking at expansion or consolidating their position in the market.

Let's be absolutely clear here, this company isn't closing due to bad management, it has clearly traded successfully for years and paid Employer PRSI.

If anyone argues that provision should be made annually in the accounts for " potential redundancies " or any other un- quantifiable liability, a large number of companies in Ireland will never show a profit.

Its scandalous that this company has no protection from its landlord whim, its equally scandalous that the owner is in this situation.
 
cremeegg said:
It is a small retail business, with 10 employees, some part time. After paying my friend a good wage over the years the company has made very little profit. A nice lifestyle business.
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Paul O Mahoney said:
Let's be absolutely clear here, this company isn't closing due to bad management, it has clearly traded successfully for years and paid Employer PRSI.
Click to expand...

It is a small retail business. Most bricks and mortar shops have seen their commercial viability decline. Look at all the empty shops. If you had a small clothes business for example, it's probably a coffee shop now. Lots of newsagents have closed as well.

A lot of owners of businesses are working hard and making a very small wage, so closing it is the right thing to do as they approach retirement.

cremeegg said:
However the landlord has said that the lease will not be renewed
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Paul O Mahoney said:
Its scandalous that this company has no protection from its landlord whim
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Cremeegg does not know the full story here. If he has had a lease of at least 5 years, he has a right to renew that lease, unless the tenant signed a waiver. But, at market rent. And it's quite possible that his business has survived only because the rent was so low. Now the business is no longer viable at market rent. This is not an "evil landlord". The landlord has no legal or moral obligation to keep an unviable business open by giving the tenant a rent below the market level.
 
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