What Happens to Employees When a Company is Liquidated?
When a company is liquidated, employees lose their jobs as part of the process.
However, staff are entitled to certain payments, which the liquidator (insolvency practitioner) handles[1]Trusted Source – GOV.UK – Your rights if your employer is insolvent. These typically include:
Outstanding wages
Holiday pay
Redundancy pay
These payments come from the company’s assets. If assets are insufficient, employees may claim from the National Insurance Fund.
Employees should expect the following steps:
Liquidation is announced: The company publicly declares its closure due to insolvency.
Insolvency Practitioner (IP) appointment: A licensed professional takes control of the company’s affairs.
Formal notification of redundancy: Employees receive written notice of redundancy, detailing their entitlements.
Claims processing: The IP guides employees through submitting claims for owed wages and redundancy pay.
For directors
As a director, you must cooperate fully with the IP and ensure clear communication with employees. Provide all necessary documentation and be prepared for the process to take several weeks to months.
For employees
If you’re an employee, maintain communication for updates, gather your employment documents, and be ready to submit claims with the IP’s guidance. The process from liquidation to final payments can be lengthy, so patience is key.
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 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.
Employee Rights 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 (as outlined in their employment contract).
To receive statutory redundancy pay. This 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). (if their employer is unable to pay them).
To be eligible for other benefits, such as unemployment benefits and jobseeker’s allowance.
How much can employees claim? And what are the maximum limits?
In the event of insolvent liquidation, employees are entitled to several financial compensations from the National Insurance Fund (NIF) if the company itself cannot pay up to the following statutory limits:
Category
Details
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. 20 year maximum.
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
Will I receive my unpaid salary and benefits if the company is liquidating?
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).
Am I eligible for redundancy payments if the company goes insolvent?
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.
How does company liquidation affect my pension contributions?
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.
How do I file a claim for unpaid wages and benefits during company liquidation?
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.
What happens to employee contracts during company liquidation?
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.
How long does the liquidation process typically take, and when can employees expect to receive their entitlements?
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.
What should employees do if they suspect misconduct or fraud by company directors leading to liquidation?
Employees who suspect misconduct or fraud should report their concerns to the insolvency practitioner or the appropriate authorities, such as the Insolvency Service.
