What Happens to Employees When a Company Enters Liquidation? A UK Guide

In short:

• Companies in liquidation have to cease trading, as part of this, staff contracts are immediately terminated.
• Employees are entitled to unpaid wages, payment for untaken holidays, notice pay, and sometimes redundancy payment too.
• If the business doesn’t have the funds to pay what its staff is owed, employees can claim from the National Insurance Fund (NIF) instead.

A company liquidation can be an emotional and confusing situation for many. At a time of some uncertainty, the chief concern is often what happens to staff when the business closes.

It’s certainly one of the most common questions we’re asked at Forbes Burton. As such, we’ve compiled a comprehensive guide that incorporates this and many other common questions about the process. Whether you’re an employee affected by a pending liquidation, or a concerned business owner worried about their workforce, you should find the answers to a lot of your concerns here.

What happens to employees when a company enters liquidation?

They automatically become unemployed.

As liquidations are often called upon as a means of stopping the company accruing more debt, one of the stipulations is that it ceases trading immediately. With the company effectively no more, that also means that any employment contracts become instantly cancelled.

Will employees get their wages if a company enters liquidation?

Usually.

Liquidation refers to the liquidation of a company’s money and assets to create a pot that pays out to its creditors (people and organisations the business owes money to). As staff members with unpaid wages are owed by the company, they automatically become a creditor on the list to be paid.

There’s a legal order of preference that creditors are paid by once a company’s assets have been sold. Luckily for employees, those with unpaid wages are classed as a preferential creditor, meaning that their payment is one of the company’s priorities.

If the liquidation of the business doesn’t yield enough to pay its staff’s wages, then the employees will need to put a claim into the National Insurance Fund (NIF). They run a Redundancy Payment Service (RPS) that was set up to protect employees from such situations.

Are there any restrictions in claiming unpaid wages?

Since the 6^th April 2025, claims are capped at £719 per week (up from £700 prior to this date).

Employees can only claim eight weeks of money owed too. These are made up of calendar weeks, rather than a week’s worth of work. For example, a week in which an employee only worked one day still counts as a week.

On receiving the money owed to them, employees are still liable to pay the relevant income tax and National Insurance.

Who will be paid first in liquidations?

Secured creditors with fixed charges are paid first in liquidation.

These are often banks or other lenders that the company has secured a loan with by putting up assets as collateral. If a business finds it difficult to secure funding, they’ll sometimes offer up a guarantee of some sort. These can take the form of machinery, vehicles, or even property.

Once these creditors have been given what their contract promised, the liquidation will move on to start paying preferential creditors next. While unpaid wages are always classed as preferential, redundancy pay and other money are classed as unsecured. This means that they appear on the next round of payment preferences instead.

Do employees get redundancy if a company goes into liquidation?

If the staff member had been employed by the dissolved business for two years or more, then they may be entitled to redundancy pay.

Contractors hired by the company are not entitled, nor are those that quit just before being made redundant.

How much redundancy pay do employees get?

It depends on how long they’ve worked for the company, and how old they are.

According to gov.uk, the current rules as of 24^th April 2025 state that,

• Workers aged 22 and below receive half a week’s pay for each full year employed by the company
• Workers aged between 22 and 40 receive one week’s pay for each full year employed by the company
• Workers aged 41 and above receive a week and half’s pay for each full year employed by the company

Since the 6^th April 2025, this is now capped at £719 per week, up to a maximum of 20 years’ employment.

Who pays redundancy? Employer or government?

If able, the employer will always pay redundancy payments. However, if there are insufficient funds to do so, employees can apply to the Redundancy Payments Service (RPS) to pay them instead. The RPS is a governmental body that uses National Insurance contributions to cover redundancy payments when an employer cannot.

Do staff get paid holiday pay for unpaid holidays in redundancy?

Yes, employees are entitled to up to six weeks of untaken holiday pay. Like unpaid wages, this is capped at £719 per week.

Employees are also entitled to payments for holidays taken within the last 12 months that weren’t paid for.

Do employees get paid their notice period if made redundant?

Staff members can claim for statutory notice pay even if there was no notice period listed in their contract.

Each year the worker was employed counts toward a week’s notice, with a cap at 12 weeks. Again, this tops out at £719 per week.

All employees are able to claim, unless they have already worked a full and paid notice period.

Do TUPE regulations apply?

TUPE regulations only protect employees when they are being transferred to another company.

As liquidated businesses always close down, TUPE regulations do not come into play.

How do employees receive their payment?

Unfortunately for employees, it can take a number of months before they receive what they’re owed. Both they and business owners need to liaise with the insolvency practitioner acting as liquidator who will inform them of what they need to do at every step.

The insolvency practitioner provides guidance to employees on both what they can claim, and how to claim it. They’ll help with any paperwork issues, and act as a conduit between the employee and the RPS.

Other considerations for employees

Insolvency expert at Forbes Burton, Paul Turner, recommends that employees ask the liquidator in place about any company pension schemes. “In the majority of cases” Turner says, “company pension funds are protected and wouldn’t count as part of the company’s assets, but this can depend on the terms of the contract, so is always worth clarifying”.

“In the midst of redundancy drama, employees can sometimes forget that they’ve left personal possessions behind in the workplace too. There are deadlines in which these can be retrieved by, and employees may have to provide evidence that the items are theirs and not owned by the business. Any unclaimed items can be sold off by the insolvency practitioner as part of the liquidation”.

Have more questions about the liquidation procedure?

Forbes Burton is here to provide help and guidance to business owners nationwide. If you’ve considered liquidation, but have some concerns, then give us a call for obligation-free guidance.

Unlike insolvency practitioners that only offer liquidation services, we provide several different closure options, as well as sales and turnaround services. This means that we won’t advise you to liquidate if we don’t think it’s the best option for you.

Find out the best route for your particular business by calling 0800 975 0380 or emailing advice@forbesburton.com for more information.