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Interest free loan to meet redundancy payments

How often has the cost of redundancies been the principal obstacle to restructuring a business?

Few employers are aware of the financial assistance offered by the Insolvency Service’s Redundancy Payments Office ('RPO') to meet the cost of redundancies.

Qualifying criteria

Applicants will need to show that: 

  • the business lacks the funds to meet the statutory redundancy payments;
  • providing help will:
    • save a significant number of jobs;
    • secure the solvency of the business for the foreseeable future;
  • the business will be able to repay the money within an agreed period of time. 

Minimum information requirements 

The RPO require: 

  • an explanation of why redundancies are necessary and funds are not available to meet the payments, supported by:
    • latest management accounts including a profit and loss account and balance sheet;
    • last set of audited accounts;
    • a detailed monthly cash flow forecast detailing the proposed repayments to the RPO and, if showing a deficit in excess of any finance facilities, how the business intends to manage the deficit;
  • evidence that other sources of finance have been explored; including approaches to directors and shareholders;
  • evidence that the business has already exhausted other measures to raise the finance e.g. sale of assets, renegotiating terms with creditors, improved debt collection;
  • copies of the last three months bank statements;
  • full details, with supporting evidence, of the employees concerned. 

A lifeline for businesses

If an application is successful, the RPO offer an interest free loan which may be repayable over two years. 

Clearly businesses with significant numbers of long serving staff could see a dramatic improvement in their cash flow which, as part of a well thought-out restructuring plan, may prove to be the lifeline needed to turn the business around. 

Should you require our assistance with the evaluation and collation of information in making an application for funding from the RPO then do not hesitate to contact us

Caroline Stark is a senior manager at Mercer & Hole.  The views given in this blog are personal to the author, if you would like to discuss the contents of this blog in with Caroline you can call her on 01727 869141. 

 

 

Date: 1st December, 2009
Author: Caroline Stark

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