When a company enters liquidation, employees are automatically dismissed and considered redundant. This is a direct legal consequence of the company ceasing to trade. Employees typically become unsecured creditors, and their employment contracts are terminated on the date the liquidator is appointed.
Employees are entitled to claim statutory payments, including redundancy pay, notice pay, holiday pay, and wage arrears. These claims are managed through the appointed liquidator and are often paid out by the government’s Redundancy Payments Service (RPS). “If a company’s assets are insufficient to meet all its debts, employees may apply to the Redundancy Payments Service (RPS) for statutory entitlements such as redundancy pay, unpaid wages, holiday pay, and notice pay. However — subject to statutory caps on weekly pay and years of service — RPS provides only the minimum statutory levels, and may not cover amounts beyond those limits.
Employees can submit their claims online using a unique ‘CN’ number provided by the liquidator. To avoid delays, employees must ensure accuracy when submitting their claims.
Liquidation in the UK is a formal insolvency process where a company’s operations cease, its assets are sold, and proceeds are distributed to creditors. Unlike administration or a Company Voluntary Arrangement (CVA), which aim to rescue the business, liquidation is final and results in the company ceasing to exist. For employees, this means their employment contracts are automatically terminated once a liquidator is appointed.
When a company is liquidated, many employees’ contracts are terminated and they lose their employment. Some of their claims — like unpaid wages, holiday pay or redundancy pay — may be treated as preferential or protected claims under insolvency law, or be eligible for support from the Redundancy Payments Service (RPS), rather than being treated simply as ordinary unsecured creditor claims. The exact status depends on the type of claim and insolvency route.
Directors must recognise that choosing liquidation over other insolvency routes directly impacts employees’ job security. Meanwhile, employees should be aware that while their employment ends with liquidation, statutory protections exist to help them claim owed payments.
Redundancy, Notice Pay, and Other Entitlements
When a company enters liquidation, employees are entitled to several statutory payments, including redundancy pay, notice pay, arrears of wages, and holiday pay. Each entitlement has specific conditions and statutory limits.
Key Qualifying Criteria:
A minimum of two years’ continuous service is required for redundancy pay.
Employment must have been terminated due to liquidation.
Claims must be submitted through the RPS with the necessary documentation.
Actual payment amounts depend on factors like length of service and statutory limits.
Statutory Redundancy Pay
Employees with at least two years of continuous service are eligible for statutory redundancy pay. The amount depends on age, length of service (up to 20 years), and weekly pay, which is capped at £719 from 6 April 2025 (£749 in Northern Ireland).
Notice Pay and Periods
Notice pay compensates employees for the statutory notice period not given. It is calculated as one week’s pay per year of service, up to a maximum of 12 weeks. The Redundancy Payments Service (RPS) only covers the statutory minimum period, regardless of contractual terms.
Arrears of Wages
Employees can claim up to eight weeks’ worth of unpaid wages, including overtime and bonuses.
Holiday Pay
Holiday pay covers accrued but untaken leave or leave taken but unpaid. Employees can claim up to six weeks’ worth of holiday pay.
Priority of Employee Claims and Payment Timelines
Employees are prioritised as creditors during liquidation, meaning their claims for unpaid wages and holiday pay are treated as preferential debts up to statutory limits. This ensures they receive some payment before other unsecured creditors. The actual amount depends on the company’s available assets.
Payments are typically processed through the Redundancy Payments Service (RPS), which aims to handle claims within six weeks of submission. While the RPS covers statutory entitlements, any amounts exceeding these limits become unsecured claims against the company’s remaining assets. Therefore, full payment is not guaranteed and depends on the liquidation’s proceeds.
Directors’ Responsibilities Towards Employees
When a company faces liquidation, directors have legal and moral obligations to their employees. These responsibilities ensure the process is handled with transparency and care, minimising distress among staff.
Directors must maintain clear communication with employees, informing them promptly about the liquidation process and its implications for their employment status. Transparent communication helps manage expectations and reduce uncertainty.
Directors are also responsible for issuing the necessary termination documents. As employment contracts are automatically terminated upon liquidation, providing formal notice of redundancy is crucial. This includes distributing redundancy notices and ensuring all employees understand their rights to claim statutory entitlements.
Another vital duty is accurate record-keeping. Directors must ensure all records of pay owed, including wages, holiday pay, and other entitlements, are up-to-date and precise. These records are essential for the liquidator to verify claims and facilitate payments through the Redundancy Payments Service.
Key responsibilities include:
Communicating clearly with employees about the liquidation process.
Issuing redundancy notices and termination documents.
Maintaining accurate records of all pay owed to employees.
How to Claim Through the Redundancy Payments Service (RPS)
Employees must follow specific steps to ensure the timely processing and payment of redundancy pay, wage arrears, holiday pay, and notice pay through the UK’s Redundancy Payments Service (RPS).
Receive Your CN Number: Once the company enters liquidation, the appointed liquidator will provide you with a ‘CN’ (case reference) number, which is essential for your claim.
Gather Required Documents: Have your National Insurance number, details of your employment, and any relevant payslips or employment contracts ready to support your claim.
Submit Your Claim Online: Visit the Gov.uk website and use the online service to submit your claim, ensuring you enter your CN number and personal details accurately.
Claim for Notice Pay Separately: If claiming statutory notice pay, wait until your notice period has ended to submit this claim. For this process, you will need an ‘LN’ number from the liquidator.
Meet Deadlines: Submit all claims promptly. While there is no strict deadline, delays can affect payment processing speed.
Await Payment Processing: The RPS typically processes payments within six weeks of receiving a complete and verified application. Keep in contact with the liquidator if there are any delays.
By following these steps precisely and ensuring all information is correct, you can help facilitate a smoother claims process through the RPS.
If your company is facing liquidation and you’re concerned about the impact on employees, our licensed insolvency practitioners and business rescue specialists can explain your responsibilities and guide you through the next steps. Call us free on 0800 074 6757.
FAQs about Employees and Company Liquidation
What if my employer cannot afford to pay redundancy out of company funds?
If your employer cannot cover redundancy payments, you can claim through the Redundancy Payments Service (RPS). The RPS ensures employees receive statutory redundancy pay from the National Insurance Fund, safeguarding your basic entitlements even if the company’s assets are insufficient.
Do employees always receive their full holiday pay entitlement?
Employees can claim accrued but untaken holiday pay for up to six weeks, subject to statutory limits. However, if the amount owed exceeds these limits, the remaining balance becomes an unsecured claim against the company’s assets.
How long does it take to receive payment from the Redundancy Payments Service?
Typically, payments from the RPS are processed within six weeks of submitting a complete and verified application. This timeframe ensures that employees receive their entitlements promptly.
Does liquidation affect pension contributions still owed?
Employees can claim unpaid pension contributions up to 12 months before insolvency. These claims are processed through the RPS and are subject to statutory limits.
What happens if an employee is both a shareholder and an employee?
An individual who is both a shareholder and an employee can claim statutory entitlements as an employee. However, any payments may be offset against outstanding director’s loans or other financial interests in the company.
Do zero-hours contract workers have the same rights in liquidation?
Zero-hours contract workers are entitled to statutory redundancy pay and other claims like any other employee, provided they meet the qualifying criteria for each entitlement.
