Most CVAs work well – but some fail, with the business moving directly from the CVA into administration or liquidation. When we take on such cases, we often find insolvency practitioners don’t have a clear understanding of what employees made redundant on or after this point can claim from the RPS.

Here’s what you need to know:

When a CVA fails and the company goes into administration or liquidation, the RPS will pay redundancy and notice pay payments as normal. The RPS will also pay wages and holiday pay accruing prior to the CVA.

The RPS will NOT accept claims for any wages or holiday pay accruing during the CVA trading period. This is because the RPS takes the CVA appointment date as the relevant insolvency date, not the date the company entered administration or liquidation, and will not pay post insolvency liabilities.

Employee creditor status remains the same as in other insolvencies. However, any wages and holiday pay accruing during the CVA trading period remain a cost of the CVA trading period.

The case law around this issue was established by SOS v McDonagh & Ors in 2013. In this case, the Appeal court overturned the decisions of two separate employment tribunals that former employees of a company which had gone into liquidation after being in CVA were entitled to claim arrears of pay and holiday pay.

The original judge had decided that as the company was continuing to pay wages whilst in CVA, it did not become insolvent until the date of liquidation and that the date of liquidation should therefore be the appropriate date. The Appeal judge ruled instead that the appropriate date was the date the company entered the CVA, saying ‘it is incoherent to suggest that a company which is insolvent by statute becomes insolvent again or in addition or in any additional way when wound up. The underlying state of insolvency has not changed.”

Where a CVA ends (in accordance with the CVA proposals) and the company is released from the constraints of the CVA, but then later enters liquidation or administration, the RPS will pay claims as normal. The relevant insolvency date in these cases is the date of the new liquidation or administration.