Introduction: You're Not Alone - But You Must Act Quickly
Realising you can’t pay employees is one of the most stressful and serious situations a company director can face.
It often signals deeper cash flow problems, but there are solutions.
At Business Helpline, we speak to directors daily who are under immense pressure, worried about their legal obligations, staff morale, and the future of their business.
If this is you, this guide is here to provide clarity, reassurance, and a clear action plan.
1. First: Confirm the Cause of the Shortfall
Before anything else, assess why you’re facing this problem.
Common causes include:
- Late customer payments
- Loss of a key client
- Rising supplier or energy costs
- Poor cash flow forecasting
- Tax liabilities or bounce back loan repayments
Understanding why you can’t pay employees is essential to finding the right remedy. Whether that’s short-term funding or a deeper business rescue strategy.
2. Communicate with Your Employees Transparently
It’s tempting to delay or stay silent, but this can make matters worse.
You have a legal and moral duty to communicate clearly and honestly with your staff.
Explain the situation, what’s being done, and when they can expect updates or payments.
This helps maintain trust and may even reduce the chance of immediate legal action.
3. Prioritise Critical Payments (Including Wages and NI)
If you’re juggling multiple debts, employee wages and National Insurance contributions must take top priority.
Failure to pay staff and HMRC can result in:
- Employment tribunal claims
- Director disqualification
- Personal liability in severe cases
Read more: Can’t Afford Employer National Insurance Contributions?
4. Seek Professional Insolvency Advice Immediately
This is not the time to go it alone.
Speak to a licensed insolvency practitioner or business debt specialist, like us at Business Helpline as early as possible.
We offer free, confidential advice and can help you understand:
- Whether the business can be saved
- What your options are (rescue, restructure, or close)
- Your personal legal responsibilities as a director
5. Explore Short-Term Funding or Emergency Options
If your business is viable but simply experiencing a short-term cash crunch, consider:
- Invoice financing – release cash tied up in unpaid invoices
- Overdrafts or business loans – if your credit position allows
- HMRC Time to Pay arrangements – to defer tax debts
- Reducing director dividends or pay temporarily
These can buy breathing room but always seek advice before taking on more debt.
6. What if the Business Can’t Be Saved?
If your company is insolvent (liabilities exceed assets or you can’t pay debts when due), you must act in the creditors’ best interests.
This could mean:
Creditors’ Voluntary Liquidation (CVL)
Read: What is a Creditors Voluntary Liquidation (CVL)?
A CVL is the most common insolvency route for directors who’ve realised their company is no longer viable.
Key features:
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Initiated voluntarily by company directors and shareholders
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An Insolvency Practitioner (IP) is appointed to liquidate the company’s assets and distribute funds to creditors
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All company debts are written off once the process is complete (except personal guarantees, if applicable)
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Staff are made redundant, but can claim unpaid wages, holiday pay, notice pay, and redundancy through the Redundancy Payments Service
This route can bring closure and relieve the pressure of mounting debt, legal threats, and creditor demands.
Company Voluntary Arrangement (CVA)
Read: What is a CVA and how does it work?
If your business is fundamentally viable, meaning it could survive with some breathing space, a CVA might be the right solution.
Key features:
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A legally binding agreement between the company and its creditors
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Typically allows you to repay a portion of debts over 3–5 years
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You can continue trading during the arrangement
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Creditors must vote to approve the CVA (requires 75% by debt value)
A CVA can be a lifeline if you need time to recover cash flow and protect jobs while paying back debts in a manageable way.
Administration
Administration offers temporary legal protection from creditor action while a strategy is formed to rescue, sell, or wind down the business.
Key features:
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A licensed Insolvency Practitioner becomes the company’s Administrator
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Creditors can’t take legal action (like winding-up petitions or bailiff enforcement) without court permission
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The Administrator works to achieve the best outcome for creditors, which may include selling the business as a going concern
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Often used for larger companies or those with complex creditor arrangements
Administration can protect the company while allowing directors to explore a sale or restructure.
But it’s more expensive and typically used in more complex cases.
7. Protecting Yourself as a Director
If you continue trading while knowingly unable to pay employees, you risk:
- Wrongful trading claims
- Director disqualification (up to 15 years)
- Personal liability for business debts
Taking advice early and acting responsibly will help protect your reputation, legal position, and future career as a director.
8. Can Employees Claim Redundancy Pay?
Yes, if the company enters liquidation or administration, employees can claim:
- Up to 8 weeks’ unpaid wages
- Statutory redundancy pay
- Holiday pay and notice pay
These are paid by the Redundancy Payments Service (a government-backed fund) not the company.
9. You're Not a Failure But You Do Need to Take Control
Thousands of companies face this situation each year. It doesn’t mean you’ve failed, but it does mean it’s time for decisive action.
At Business Helpline, we’ve helped over 5,000 directors through similar situations. We’ll listen without judgement and help you make the right decision fast.
Next Step: Speak to an Advisor Now
📞 Free 24/7 Helpline: 0800 088 2142
📩 Or request a call back via our contact form
Don’t wait. The sooner you act, the more options you’ll have.
