What Happens To Employees When A Company Goes Into Liquidation?

Employees in Liquidation

When a limited company goes into liquidation, employees are usually one of the first groups affected.

In many cases, employees will be made redundant because the business is closing. However, redundancy is not automatic in every situation. Some employees may be retained temporarily to help with an orderly shutdown, while others may transfer to a new employer if part of the business is sold.

Where an insolvent company cannot pay wages, redundancy pay, holiday pay or notice pay, eligible employees may be able to claim statutory payments through the government’s Redundancy Payments Service (RPS).

If you are a company director considering liquidation, this guide explains what happens to your employees, what they may be entitled to claim and what information will need to be provided.

For a broader explanation of the insolvency procedure itself, read our full Creditors’ Voluntary Liquidation guide.

Quick Answer

Employees are commonly made redundant when an insolvent company enters liquidation, but redundancy is not automatic in every case. Eligible employees may be able to claim statutory redundancy pay, unpaid wages, holiday pay and notice pay through the Redundancy Payments Service if the company cannot pay them. Some employees may temporarily continue working or transfer if part of the business is sold.

What Happens to Employees in Liquidation

Are Employees Automatically Made Redundant When a Company Goes Into Liquidation?

Not necessarily.

In most Creditors’ Voluntary Liquidations, the company is being closed because it can no longer continue trading, so redundancy is very common.

However, depending on the circumstances:

some employees may be made redundant immediately;
some may remain employed for a short period to help wind the business down;
some may continue working while assets or parts of the business are dealt with;
employees may potentially transfer to a purchaser where part of the business is sold.

Official guidance confirms that employees of an insolvent business may be made redundant, asked to continue working or, in some cases, transferred to another employer.

The exact position depends on what happens to the company and its business.

What Happens to Employees in a CVL?

In a Creditors’ Voluntary Liquidation, the company is insolvent and is normally being closed.

Once the liquidator is appointed, they take responsibility for dealing with the company’s affairs.

Where employees are made redundant, the insolvency practitioner will normally provide the information needed to make statutory claims.

The CVL process can therefore affect employees at several stages, including:

stopping trading;
redundancy;
calculating amounts owed;
providing claim information;
dealing with employee claims as part of the insolvency.

For directors, it is important to have accurate employee and payroll records available so the insolvency practitioner can deal with employee matters properly.

What Can Employees Claim When a Company Goes Into Liquidation?

Where an insolvent employer cannot pay what employees are owed, eligible employees may be able to claim certain statutory payments through the Redundancy Payments Service.

These can include:

statutory redundancy pay;
unpaid wages;
holiday pay;
statutory notice pay.

Different eligibility rules and statutory caps apply to each type of payment.

Statutory Redundancy Pay

Employees will normally qualify for statutory redundancy pay if they:

are employees rather than self-employed contractors;
have been made redundant;
have at least two years of continuous employment with the employer.

Statutory redundancy pay is calculated using:

age;
length of service;
weekly pay.

Up to 20 years of employment can be taken into account.

For redundancies taking place on or after 6 April 2026, weekly pay used for the statutory calculation is capped at £751, giving a maximum statutory redundancy payment of £22,530.

Employees owed more than the statutory amount may be able to register as creditors in the liquidation for any remaining balance.

Can Employees Claim Unpaid Wages?

Yes, potentially.

Where an insolvent company cannot pay outstanding wages, eligible employees can claim up to eight weeks of unpaid wages, subject to the statutory weekly cap.

For claims relating to redundancies from 6 April 2026 onwards, that cap is currently £751 per week.

If an employee is owed more than the government scheme can pay, the remaining balance can potentially form a creditor claim against the company.

Can Employees Claim Unpaid Holiday Pay?

Eligible employees may also claim holiday pay through the Redundancy Payments Service.

This can include:

holiday accrued but not taken;
holiday taken but not paid.

The scheme can pay up to six weeks of holiday pay, subject to the statutory weekly limit.

The payment relates to holiday accrued or taken in the 12 months before the employer became insolvent.

Can Employees Claim Notice Pay?

Potentially, yes.

Employees are normally entitled to statutory notice when they are made redundant.

Where they do not work their full notice period, they may be able to make a claim for statutory notice pay, sometimes referred to as loss of notice pay.

Statutory notice is normally calculated at one week for each complete year of employment, up to a maximum of 12 weeks.

A notice-pay claim is handled separately from the initial redundancy, wages and holiday claims.

Employees must first make the main insolvency claim and will then be told when they are eligible to submit the notice-pay application.

Who Pays Employees If the Company Has No Money?

This is one of the main purposes of the Redundancy Payments Service.

Where an employer has formally become insolvent and cannot meet eligible statutory employee liabilities, the RPS can make payments from the National Insurance Fund.

The government scheme does not necessarily cover everything an employee is owed.

Statutory caps apply, and amounts beyond those limits may need to be claimed as debts in the liquidation.

Employees therefore do not necessarily lose all entitlement simply because the company has no cash available.

How Do Employees Claim Money After Liquidation?

Once the employer has formally entered insolvency, the insolvency practitioner or Official Receiver will provide employees with the relevant case reference number.

Employees need this reference before they can submit their government claim.

The basic process is:

The company enters formal insolvency.
Employees who are being made redundant receive the necessary insolvency case information.
Employees apply online for redundancy pay, unpaid wages and holiday pay.
The employee indicates that they also wish to claim statutory notice pay.
The employee is later told when the notice-pay claim can be submitted.

Employees should not normally wait until the whole liquidation is finished before applying.

A redundancy claim must generally be made within six months of dismissal.

Do Employees Have to Wait Until the Liquidation Is Finished?

No.

An employee does not normally have to wait until the company has been dissolved or the entire liquidation has been completed before making eligible claims.

Once the employer is formally insolvent, the employee has been dismissed and the relevant case reference has been provided, claims for redundancy, unpaid wages and holiday pay can generally be started.

This is important because a liquidation itself can continue for many months.

Our CVL timeline guide explains why completing the full liquidation can take considerably longer.

Can Employees Continue Working During Liquidation?

Potentially.

Although most CVLs ultimately result in the company closing, some employees may be asked to continue working temporarily.

This might happen where the insolvency practitioner needs staff to:

complete an orderly shutdown;
assist with stock or records;
continue limited activity while assets are dealt with;
assist while a business or part of it is being sold.

Employees who continue working should be told about their position by the insolvency practitioner or employer.

Can Employees Transfer to a New Employer?

Sometimes.

If a business, or part of a business, is sold rather than simply shut down, employees may in some circumstances transfer to the buyer under the Transfer of Undertakings (Protection of Employment) Regulations, usually known as TUPE.

ACAS confirms that TUPE protections can apply where employees transfer from an insolvent employer to a new employer.

Whether TUPE applies depends on how the business or assets are being transferred.

It should therefore not be assumed that every employee automatically becomes redundant simply because the original company is insolvent.

What Happens to Employee Pensions When a Company Goes Into Liquidation?

The impact depends partly on the type of pension arrangement.

Defined Contribution Pensions

Money already paid into an employee’s pension normally belongs to the pension scheme rather than the employer.

The liquidation of the employer does not normally remove the employee’s existing pension pot.

Defined Benefit Pensions

A defined benefit pension scheme may require more specialist treatment where the employer becomes insolvent.

Employees should contact the pension trustees, scheme administrator or insolvency practitioner for information about how their scheme is affected.

If employees believe pension contributions have been deducted from wages but not paid into the pension scheme, they should raise this with the insolvency practitioner or Official Receiver.

What Happens If Employees Were Not Properly Consulted?

Employment consultation obligations can still matter when a company is insolvent.

Where an employer proposes 20 or more redundancies at one establishment, collective redundancy consultation requirements may apply.

If the correct consultation process is not followed, affected employees may potentially pursue a protective award through an employment tribunal.

Where the former employer is insolvent, the Insolvency Service can pay qualifying protective awards from the National Insurance Fund, subject to the statutory limits.

Employees who believe their redundancy rights have not been followed should consider taking specialist employment advice.

What Information Will the Liquidator Need From Directors?

Directors can help reduce problems and delays by making sure employee records are accurate and available.

The insolvency practitioner may need information including:

employee names and contact details;
employment start dates;
salaries and wages;
payroll records;
PAYE information;
outstanding wages;
accrued holiday;
employment contracts;
pension information;
redundancy dates;
details of notice already given.

Providing complete records can make it easier for employee claims to be processed correctly.

Can Company Directors Claim Redundancy Too?

Potentially.

A company director is an office-holder, but they may also have been an employee of the company.

The Insolvency Service confirms that directors can qualify for redundancy-related payments where they can demonstrate that they were genuinely employees, including evidence of an express or implied contract of employment.

Being a director alone does not automatically create entitlement.

Eligible director-employees may potentially claim:

redundancy pay;
unpaid wages;
holiday pay;
statutory notice pay.

Read our full director redundancy guide or use the director redundancy calculator to explore possible entitlement.

For wider personal consequences, see what happens to a director when a company goes into liquidation.

FAQ’s About Liquidation and Employees

Do employees automatically lose their jobs when a company goes into liquidation?

No. Employees are commonly made redundant when an insolvent company closes, but some staff may continue temporarily or potentially transfer if part of the business is sold.

Who pays redundancy if the company has no money?

Eligible statutory payments can be made through the government’s Redundancy Payments Service where the insolvent employer cannot pay.

What can employees claim if their employer goes bust?

Eligible employees may be able to claim statutory redundancy pay, unpaid wages, holiday pay and statutory notice pay, subject to eligibility requirements and statutory limits.

How many weeks of unpaid wages can employees claim?

The government scheme can generally cover up to eight weeks of unpaid wages, subject to the statutory weekly cap.

How much holiday pay can employees claim?

Eligible employees can claim up to six weeks of holiday pay, subject to the applicable statutory limit.

Do employees have to wait until liquidation ends before claiming?

No. Eligible claims can normally begin once the employee has been dismissed, the employer is formally insolvent and the employee has received the required insolvency case reference.

Can employees transfer to another company?

Potentially. TUPE protections can apply where an insolvent business or part of it transfers to another employer.

What happens to pensions when a company is liquidated?

Existing pension benefits do not simply disappear because an employer becomes insolvent. The precise position depends on the pension arrangement and whether all required contributions have been paid.

Can directors claim redundancy in liquidation?

Potentially. Directors must demonstrate that they were genuinely employees of the company as well as office-holders.

What if the company failed to consult employees properly?

Where collective redundancy rules apply and the employer failed to consult properly, affected employees may potentially obtain a protective award through an employment tribunal. In an insolvency, qualifying amounts may be paid by the Insolvency Service subject to statutory limits.

What Should Directors Do About Employees Before Liquidation?

If your company is likely to enter liquidation, do not leave employee matters until the last minute.

Directors should make sure that:

payroll records are accurate;
employee contact details are up to date;
employment contracts can be located;
outstanding wages and holiday are recorded;
pension information is available;
the proposed insolvency practitioner is told about all employees;
no promises are made to employees about payments that the company cannot guarantee.

The insolvency practitioner can then explain what will happen to staff and what information will be needed for employee claims.

Get Advice Before Placing Your Company Into Liquidation

If your business can no longer pay HMRC, suppliers, employees or other creditors, the effect on staff is likely to be one of your biggest concerns as a director.

Business Helpline can help you understand: