When a company enters administration, employees are not automatically made redundant.
The administrator may continue trading the business, retain employees, make redundancies or sell the business to a new owner.
What happens depends on whether keeping the workforce helps preserve the business and achieve a better outcome for creditors.
For the wider process, see our Company Administration guide.
💡 Quick Answer
Employees do not automatically lose their jobs when a company enters administration.
Staff may continue working, be made redundant or transfer to a new employer if the business is sold.
Eligible employees who are made redundant may be able to claim statutory redundancy pay, unpaid wages, holiday pay and notice pay through the Insolvency Service.
Do Employees Lose Their Jobs in Administration?
Not necessarily.
Administration is often used where there is still a viable business or valuable trading operation worth protecting.
The administrator may therefore keep some or all employees while:
- continuing to trade;
- restructuring the company;
- looking for a buyer; or
- preparing the business for sale.
Some employees may nevertheless be made redundant if their roles are no longer required or the company cannot afford to retain them.
Who Decides What Happens to Employees?
Once an administrator is appointed, they take control of the company.
The administrator decides whether employees should:
- continue working;
- be made redundant;
- transfer as part of a business sale; or
- remain employed during a restructuring.
Directors normally lose their usual management powers once the company enters administration.
What Happens If Employees Are Made Redundant?
Employees who are made redundant because their employer is insolvent may be able to claim certain statutory payments through the Insolvency Service.
You can also read our guide to director and employee redundancy in insolvency for more information on redundancy-related claims and eligibility.
Depending on eligibility, these can include:
- statutory redundancy pay;
- unpaid wages;
- accrued holiday pay; and
- statutory notice pay.
Employees usually need at least two years of continuous employment to qualify for statutory redundancy pay.
Statutory limits apply and are updated periodically, so employees should check the latest GOV.UK guidance when making a claim.
Can Employees Claim Unpaid Wages?
Yes, potentially.
Eligible employees can claim certain unpaid wages through the government’s Redundancy Payments Service where the insolvent company cannot pay them.
This can include qualifying:
- salary or wages;
- overtime;
- bonuses; and
- commission.
Claims are subject to statutory limits.
What Happens to Holiday and Notice Pay?
Employees may also be able to claim qualifying unpaid holiday pay and statutory notice pay.
The amount depends on the employee’s circumstances, length of service and the relevant statutory limits.
The insolvency practitioner dealing with the company will normally provide employees with information about how to make a claim.
What Happens If the Business Is Sold?
A company in administration may be sold as a going concern.
This can help preserve:
- jobs;
- customer relationships;
- contracts;
- goodwill; and
- the underlying business.
Where employees transfer with the business, TUPE rules may apply.
For more detail, see our TUPE and Insolvency guide.
A rapid sale may also occur through a Pre-Pack Administration.
Does TUPE Apply During Administration?
It can.
Where an insolvent business is rescued and transferred to another employer, TUPE may protect employees and allow their employment to transfer with the business.
However, insolvency can affect how some TUPE protections operate, so the exact position depends on the circumstances of the sale.
Employees concerned about their individual rights should seek appropriate employment-law advice.
Can Employees Continue Working During Administration?
Yes.
Employees may continue working while the administrator trades or restructures the business.
This can be important where maintaining the workforce helps preserve the company’s value or makes a sale more attractive.
Continuing to work does not guarantee that the company will ultimately survive, and redundancies may still happen later.
What Should Directors Know About Employees?
Directors considering administration should make sure accurate employee information is available.
This should include:
- employee numbers;
- contracts;
- salary and wage arrears;
- holiday entitlements;
- pension contributions;
- length of service; and
- likely redundancy costs.
Employees can represent an important part of the value of a business, particularly where a buyer is being sought.
What If the Company Cannot Be Rescued?
If administration cannot rescue or sell the business successfully, the company may ultimately enter liquidation.
This can result in further redundancies.
Where closure is the most appropriate option, a Creditors’ Voluntary Liquidation may be used instead.
If closure becomes unavoidable, employees may face redundancy as the company moves toward liquidation. Our redundancy in liquidation guide explains what can happen when a company shuts down through an insolvency process.
Get Help With Company Administration
Administration can sometimes preserve a viable business and protect some or all of its workforce.
Business Helpline provides free, confidential initial advice to limited company directors considering administration or other insolvency options.
For the full process, read our Company Administration guide or contact us to discuss the company’s circumstances.
Call our free 24-hour helpline on 0800 088 2142 or request a confidential call back.
Employees in Administration FAQs
Are employees automatically redundant when a company goes into administration?
No. Employees may continue working while the administrator trades, restructures or sells the business.
Can employees claim redundancy pay?
Potentially. Employees with sufficient qualifying service may be entitled to statutory redundancy pay where they are made redundant.
Can employees claim unpaid wages?
Yes, eligible employees may be able to claim certain unpaid wages through the Insolvency Service, subject to statutory limits.
Does TUPE apply when a company in administration is sold?
It can. TUPE may apply where the business is transferred to a new employer, although special insolvency rules can affect the protections available.
Who pays employees during administration?
If employees continue working, ongoing employment costs are dealt with as part of the administration. Employees who are made redundant may also have statutory claims against the Insolvency Service.
Can jobs be saved through administration?
Yes. One of the benefits of administration can be preserving jobs where the business continues trading or is sold as a going concern.
