When a company goes into liquidation, employees face the immediate loss of jobs and become creditors of the company they worked for. If owed outstanding salary and benefits, they can claim this from the sale of any corporate assets. All creditors are contacted by the appointed insolvency practitioner about how long this process will take and what to expect.

If the liquidation doesn’t cover the full amount of arrears, employees can make a claim from the Redundancy Payments Service (RPS) if their employer is unable to pay them. The RPS is a government-funded scheme that provides financial assistance to employees who have been made redundant.

In addition to statutory redundancy pay, employees who are made redundant as a result of liquidation may also be eligible for other benefits, such as unpaid wages, holiday pay, and notice pay.

We’ll cover all this in detail below.

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What Happens to Employees When a Company is liquidated?

Upon the appointment of a liquidator to an insolvent company, employees are immediately dismissed. Subsequently, these former employees become creditors of the company, positioned to claim any outstanding wages or other owed reimbursements.

Employees should expect the following steps, often with specific time frames:

  1. Announcement of Liquidation: The process starts with the company publicly declaring its closure due to insolvency. Employees usually learn about the liquidation through a formal announcement from the company’s directors or the appointed Insolvency Practitioner (IP).
  2. Appointment of an Insolvency Practitioner (IP): Shortly after the announcement, a licensed professional is appointed to manage the liquidation. The IP takes control of the company’s assets and liabilities, aiming to settle debts. This appointment can happen quickly, within days of the decision to liquidate.
  3. Immediate Job Loss: Employees are often made redundant almost immediately after the liquidation announcement. The exact timing can vary but typically happens within days to weeks, depending on the company’s size and the liquidation’s complexity.
  4. Notification of Redundancy: Employees are formally notified about their redundancy by the IP or the company’s HR department. This notification includes details about redundancy pay and any other entitlements. The law requires employees to be notified in writing.
  5. Redundancy Pay Process: Eligible employees may receive redundancy pay, which is calculated based on length of service, age, and salary. The IP will provide information on how and when payments will be made. This process can take several weeks to months, depending on the liquidation’s complexity and the available assets to distribute.

Employees should expect to maintain communication for updates, gather employment documents for claims, be ready to submit claims for redundancy or owed wages with the IP’s guidance, and exercise patience as the process from liquidation to final payments unfolds.

Do Employees Get Paid if a Company Goes into Liquidation?

Employees may or may not get paid if a company goes into liquidation. Employees are considered to be unsecured creditors, meaning that they are paid after secured creditors, such as banks and other lenders who have a charge on the company’s assets. This means that employees may not receive all of the money they are owed, or even any of it if there is not enough money to pay all of the company’s debts.

If you are an employee of a company that is going into liquidation, it is important to contact the liquidator as soon as possible to discuss your rights and options. You may also want to seek advice and support from trade unions and other employee organizations.

What Rights Do Employees Have in Insolvent Liquidation?

Employees have certain rights when their employer is insolvent and enters liquidation. These rights include:

  • To receive unpaid wages and holiday pay. Employees are entitled to receive any unpaid wages and holiday pay that they are owed when a company is liquidated. However, employees are only entitled to payments outlined in their employment contract.
  • To receive statutory redundancy pay. Employees who are made redundant as a result of liquidation are entitled to statutory redundancy pay, which is calculated based on their age, length of service, and salary.
  • To claim for redundancy pay and other payments from the Redundancy Payments Service (RPS). Employees can make a claim for redundancy pay and other payments from the Redundancy Payments Service (RPS) if their employer is unable to pay them.
  • To be eligible for other benefits, such as unemployment benefits and jobseeker’s allowance. In addition to statutory redundancy pay, employees who are made redundant as a result of liquidation may also be eligible for other benefits, such as unemployment benefits and jobseeker’s allowance.

To exercise their rights, employees should contact the liquidator of the company. The liquidator is responsible for selling off the company’s assets and distributing the proceeds to the creditors. Employees can also seek advice and support from trade unions and other employee organizations.

» MORE Read our full article on the Role of a Liquidator in the Insolvency Process?

How Can Employees Process Redundancy Claims During Liquidation?

As unsecured creditors during liquidation, employees will receive updates and communication from the liquidator assigned to the case.

At the beginning of the process, the liquidator will compile a statement of affairs document detailing the company’s financial position, including what payments may be forthcoming to creditors. As a result, you should find out fairly early on in the process if you are likely to get paid what you are owed.

The liquidator is responsible for providing employees with the details of how to make a claim. Employees will be provided with a dedicated reference number (called a Case Reference or CN) that they can use for their claim.

The liquidator will also send you an RP1 Fact Sheet explaining how payments processed by the Redundancy Payments Service (RPS) are paid out of the National Insurance Fund (NIF).

To process a redundancy claim during liquidation, employees should follow these steps:

  1. Contact the liquidator to obtain a CN number.
  2. Complete the RP1 form and submit it to the RPS.
  3. Provide the RPS with any supporting documentation, such as your employment contract and pay slips.
  4. Wait for the RPS to process your claim and issue payment.

What are Employees Entitled to in Liquidation?

Employees can claim for the following as a preferential creditor.


EntitlementCriteriaPreferential Creditor
Outstanding Salaryfor up to 4 months, to a maximum of £800 in total
Holiday pay up to a maximum of 6 weeks
Occupational Pension Paymentsup to 4 months employee contributions

When Company Assets Don’t Cover What is Owed to Employees

Employees who are owed money that is not paid in full from the sale of company assets, or which exceeds the limits available as preferential creditors can claim from the National Insurance Fund (NIF).

The NIF covers the following entitlements:

  • Unpaid wages (up to 8 weeks, capped at £571 per week)
  • Holiday pay
  • Statutory notice pay
  • Pension contributions

Employees must have been employed for at least two full years before the insolvency to be eligible to claim from the NIF.

To claim from the NIF, employees must complete an RP1 form and submit it to the Redundancy Payments Service (RPS). The RPS will process the claim and issue payment if the employee is eligible.

Here are some additional tips for employees claiming from the NIF in liquidation:

  • Keep a record of all communication you have with the liquidator and the RPS.
  • Be aware of the deadlines for submitting your claim.
  • If you are unable to complete the RP1 form yourself, seek help from a friend, family member, or professional organization.
  • Be patient and persistent. The claims process can be complex and time-consuming, but it is important to follow through to ensure that you receive the payments you are owed.

Anything else you’d like to know?

If you are considering a creditors’ voluntary liquidation but are unsure of the impact on your employees, please call our team at 0800 074 6757 or use the live chat function below.

What Happens to Employees During other Formal Insolvency Processes?

During other formal insolvency processes, the impact on employees can vary:

  1. Administration: The company operates under the control of an administrator with the aim of rescuing the company as a going concern. Employees might retain their jobs during this process, especially if the business continues to operate, though redundancies can occur if the administrator deems them necessary for restructuring or if the company is eventually liquidated.
  2. Company Voluntary Arrangement (CVA): A CVA is an agreement between a company and its creditors to repay debts over a fixed period. Employees may continue working as usual, although job cuts or changes to employment terms can occur if restructuring is part of the CVA terms to improve business viability.
  3. Receivership: In receivership, a receiver is appointed to sell the company’s assets to repay specific creditors. The impact on employees depends on the extent of the receivership and the parts of the business affected. There could be job losses, particularly if significant assets are sold off and parts of the business cease to operate.
  4. Pre-pack Administration: This is a swift sale of a company’s business and assets immediately after entering administration. Employees may be transferred to the new owner under their existing terms, protecting jobs, though redundancies can still happen if the new owner restructures the business.

In each case, employee rights are considered, and mechanisms like the Redundancy Payment Service may provide financial support for unpaid wages, notice pay, and redundancy pay if the employer cannot pay these due to insolvency.

FAQs about Employees and Company Liquidation

If there are sufficient funds available during the company’s liquidation, unpaid salary and certain benefits will be paid to employees. However, it’s important to note that the amount you receive depends on the available assets. In cases where there are insufficient funds, employees may need to apply for compensation through the Redundancy Payments Service (RPS).

To be eligible for redundancy payments from the RPS, you must be an employee of the insolvent company, have a minimum continuous service period (typically two years), be made redundant due to the insolvency, and have unpaid wages and entitlements that your employer cannot pay.

The impact on your pension contributions can differ in each case, as it depends on the specific clauses and terms within the pension scheme of each company. Generally, employees’ pension funds are protected and separate from the company’s assets.

You should contact the appointed insolvency practitioner or liquidator to file a claim. They will provide the necessary forms and guidance on the claims process.

Employee contracts are typically terminated when a company goes into liquidation, leading to job loss. Outstanding contractual obligations, such as notice periods, may be addressed during the liquidation process.

Employees can expect to receive their entitlements after the sale of company assets and the distribution of funds, which will several months at a minimum.

Employees who suspect misconduct or fraud should report their concerns to the insolvency practitioner or the appropriate authorities, such as the Insolvency Service.

Yes, employees can seek guidance and support from organisations like Citizens Advice, trade unions, and insolvency professionals who can help navigate the process and clarify their rights.