A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
What happens to employees when a company goes into liquidation?
When a company enters liquidation its employees are made redundant - but they don't simply lose what they're owed: wages, notice, holiday, and redundancy pay are claimed from the government's Redundancy Payments Service, backed by the National Insurance Fund, with payments typically arriving within weeks of a voluntary liquidation.
In this guide you'll learn exactly what employees can claim, the caps and timescales, how the process works from the employee's side, and what directors should do for their staff in the run-up.
For directors, handling employees properly is both a duty and a kindness - and it's also one of the clearest reasons a voluntary liquidation beats waiting for a compulsory one, because staff are paid weeks sooner.
What can employees claim?
Four categories, each from the Redundancy Payments Service, each subject to statutory rules and a capped weekly pay figure:
Statutory redundancy pay - for employees with two or more years' service, calculated from age, service length, and capped weekly pay.
Arrears of wages - up to eight weeks of unpaid wages.
Notice pay - statutory notice (one week per year of service, up to twelve), with income earned or benefits received during the notice period offset.
Holiday pay - up to six weeks accrued but untaken.
Amounts owed above the caps rank as unsecured claims in the liquidation itself - employees are also preferential creditors for certain arrears, meaning they're paid ahead of ordinary creditors where funds exist.
How does the claims process work?
Once the liquidator is appointed, employees receive the case reference and guidance, and claim online directly to the Redundancy Payments Service - the liquidator's role is to verify the employment records that support the claims.
In a well-run voluntary liquidation, payments commonly land within two to six weeks of claims being submitted - which is why the state of the payroll records matters, and why directors keeping RTI filings current even while struggling to pay protects their staff as well as themselves.
Employees don't need solicitors or claims companies for this - the government process is free and designed for direct use, and anyone offering to "handle" a straightforward claim for a percentage is taking that percentage for form-filling.
Do directors count as employees?
Often, yes - directors who genuinely worked under a contract of employment for a salary can claim through the same scheme, and for long-serving owner-managers the sums are meaningful.
Eligibility is genuinely case-by-case, and the area attracts overpromising - our dedicated guide to director redundancy covers the tests and the caution both.
What happens if the business is sold instead of closed?
Where a business is rescued through administration or sold via pre-pack, employees attached to the business usually transfer to the buyer under TUPE - continuity of service, terms intact - rather than being made redundant.
It's one of the strongest arguments for exploring rescue before closure where the business is viable: the same workforce that would queue at the RPS instead keeps its jobs.
What should directors do for staff in the run-up?
Keep the records right - payroll, contracts, holiday balances - because clean records are the difference between staff paid in a fortnight and staff chasing for months.
Time the communication with advice - telling staff too early can collapse the business (and any rescue prospect) prematurely; telling them at the door is avoidable cruelty; the liquidation timetable allows a properly planned announcement.
Don't make promises the company can't keep, don't pay selected staff ahead of the process in ways that become preferences - and do point everyone at the official claims process from day one.
Handled properly, employees of a liquidated company are usually paid faster than most directors fear - and handling it properly is very much part of the conduct that gets reviewed.
Call our licensed insolvency practitioners in Manchester on 0333 023 5090 - if staff are part of what's keeping you awake, that's exactly the conversation to have early, in confidence, with an ICAEW-licensed IP.
InsolvencySupport.co.uk is operated by Xeinadin Corporate Recovery Limited (company no. 11415156), 8th Floor, 100 Barbirolli Square, Manchester M2 3BD. Our insolvency practitioners are licensed and regulated by the ICAEW.
This article is intended for general information purposes only and does not constitute financial, legal, or employment advice. Statutory caps and entitlements change - always check current figures and take advice about your specific position.
Reviewed by Alan Fallows, Licensed Insolvency Practitioner, ICAEW.