Discover how company liquidation impacts employees, including their rights and entitlements and what to expect during the process.

What Happens to Employees When a Company is Liquidated?

When a company is liquidated, employees lose their jobs. The liquidator is responsible for handling employee claims and ensuring they receive their entitled payments, such as outstanding wages, holiday pay, and redundancy pay, from the company’s assets.

If there are insufficient assets to cover these claims, employees may be able to claim from the National Insurance Fund. The liquidator will provide employees with the necessary information and guidance throughout the process.[1]Trusted Source – GOV.UK – Your rights if your employer is insolvent.

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

  1. The Liquidation is Announced: 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: The IP or the company’s HR department formally informs employees about their redundancy. 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.

How-does-Liquidation-Affect-Employees_

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 with 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 isn’t 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 organisations.

What Rights Do Employees Have in Insolvent Liquidation?

Employees have certain rights when their employer is insolvent and enters liquidation. These rights include[2]Trusted Source – GOV.UK – What you can get:

  • 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 company liquidator. The liquidator is responsible for selling off the company’s assets and distributing the proceeds to the creditors.

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

What are Employees Entitled to in Liquidation?

In the event of insolvent liquidation, employees are entitled to several financial compensations from the National Insurance Fund (NIF), given the company’s inability to pay. These entitlements include:

  • Unpaid Wages: Employees can claim up to 8 weeks of unpaid wages, capped at a statutory weekly limit.
  • Holiday Pay: Claims can be made for up to 6 weeks of accrued holiday pay, subject to the same weekly cap as unpaid wages.
  • Redundancy Pay: Eligible employees (those with at least 2 years of continuous service) are entitled to redundancy payments, calculated based on their age, length of service, and a capped weekly pay rate. The maximum period of service considered for redundancy pay is 20 years.
  • Notice Pay: Employees can claim notice pay as if they were given the statutory notice period by the employer, based on their length of service, up to a maximum amount.

Employees must file their claims through the Redundancy Payments Service to access these entitlements.

Why Voluntary Liquidation Can Be in the Best Interests of Employees

When a company faces insurmountable financial issues, opting for a Creditors’ Voluntary Liquidation (CVL) can be the most practical course of action. This method of closing down provides a structured process, which is beneficial for employees for two main reasons.

First, it speeds up the process for employees to get their statutory entitlements, such as unpaid wages and redundancy pay. Second, it gives employees a clear understanding of when and how the company will close, allowing them to plan their futures with more certainty.

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.

Useful Resources

Apply for money your employer owes you on GOV.UK.

Apply for statutory notice pay on GOV.UK.

Claim for redundancy and other money you’re owed by an employer

References

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

  1. Trusted Source – GOV.UK – Your rights if your employer is insolvent
  2. Trusted Source – GOV.UK – What you can get