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 goes into liquidation, its employees are made redundant. Their employment is terminated by operation of law - they do not continue working, and they are owed certain statutory payments.
This is one of the most difficult parts of liquidation for directors, who often care deeply about their staff. Understanding what happens helps you support your employees through the process.
What Employees Are Owed
Employees of an insolvent company may be entitled to:
- Unpaid wages up to a statutory limit
- Holiday pay for accrued but untaken holiday (up to a limit)
- Notice pay - pay in lieu of their notice period
- Statutory redundancy pay - based on age, length of service, and weekly pay
- Protective awards - in certain cases where collective consultation rules were not followed
The Redundancy Payments Service
Most of these entitlements are paid by the Redundancy Payments Service (RPS), funded by the National Insurance Fund, rather than from the company's limited assets. The liquidator provides the paperwork employees need to claim.
This means employees can usually recover their statutory entitlements even where the company has no money - though there are caps on amounts and certain limits.
What Directors Should Do
- Inform employees promptly and honestly when liquidation is confirmed
- Provide the liquidator with accurate payroll and employment records
- Direct employees to the RPS for their claims
- Remember you may be entitled too - if you are on the payroll with two years' service, you can claim redundancy and related payments
TUPE and Business Sales
Where a business is sold as a going concern (for example, in a pre-pack or administration), employees may transfer to the buyer under TUPE (Transfer of Undertakings regulations), preserving their employment. This can protect jobs but does not always happen in a liquidation.
Speak to a Licensed IP
Our Manchester-based practitioners will guide you through the employment aspects of liquidation compassionately and clearly, helping your employees claim what they are owed. Call us for advice.