Employee Rights During Company Insolvency: A Guide

When an employer becomes insolvent or enters administration, employees face uncertainty about their jobs, pay and statutory entitlements. UK law provides specific protections and processes to ensure employees can recover certain monies owed and, in some cases, retain employment. These rights arise from the Employment Rights Act 1996, the Insolvency Act 1986, and related statutory schemes administered through the Redundancy Payments Service and other government bodies. This article explains those rights, how insolvency and administration affect contracts, what claims you can make, time limits, common risks and practical steps to protect your interests.

What Insolvency and Administration Mean

Insolvency occurs when a company cannot pay its debts as they fall due or its liabilities outweigh its assets. Common insolvency procedures include:

• Administration – a licensed insolvency practitioner (administrator) takes control to try to rescue the company, sell it as a going concern, or realise assets.
• Liquidation (winding up) – the company's assets are realised and the business is closed.

Administration is designed to give the company breathing space and can affect how employment contracts are treated.

Contracts and Employment Status During Administration

When a company enters administration, the appointed administrator may continue the business and honour existing employment contracts for a period. If the administrator retains you for more than about two weeks, your rights under your contract and statutory employment rights continue as though the employer remained solvent. These rights may also transfer to a new employer if the business is sold on under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).

What Rights Employees Have When Insolvency Occurs

1. Priority Status and Payments

Employees may have a preferential position in insolvency:

• If retained by the administrator during the first 14 days, employees can become preferential creditors, giving them priority ahead of many other unsecured creditors for certain wages and holiday pay up to statutory limits.

However, where assets are insufficient, employees often must claim on a statutory scheme administered by the Redundancy Payments Service (RPS), funded from the National Insurance Fund (NIF).

Payments Employees Can Claim

When a company is insolvent, the following payments are typically available through the RPS/NIF:

Statutory Redundancy Pay

If you have two or more years' continuous service and are made redundant because the employer is insolvent, you can claim statutory redundancy pay. The amount depends on your age, length of service and weekly pay, subject to statutory caps and maximum service limits.

Unpaid Wages

You can claim arrears of wages up to a statutory limit (for example, eight weeks' pay) up to the weekly cap, for work done before insolvency.

Holiday Pay

Employees can claim for holiday accrued but not taken and, in some cases, holiday taken but unpaid, usually up to six weeks' worth at the statutory weekly cap.

Statutory Notice Pay

If your employer did not pay you for the statutory notice period, you can claim this amount (often up to a statutory maximum number of weeks).

Other Contractual Entitlements

Other contractual payments owed under the contract (such as bonuses, commission, or unpaid overtime) may be claimed, subject to statutory limits and eligibility conditions.

Pension Contributions and Other Payments

Contacts and contributions relating to pension schemes may be pursued through other statutory schemes, including the Pension Protection Fund, or via the insolvency practitioner as part of creditor negotiations. Other statutory entitlements – for example statutory sick pay or family-related pay – may be managed by HM Revenue & Customs or the Department for Work and Pensions.

How to Claim Payments From the Redundancy Payments Service

When insolvency or administration occurs, the insolvency practitioner should contact you and provide claim forms (for example, forms such as RP1 for redundancy and related payments). You will use these forms to make your claim to the RPS. Key points include:

• You will usually be given a case reference number (CN number) to make your statutory entitlement claims.
• Claims should be submitted as soon as practicable after dismissal or redundancy, and you will typically receive payment within several weeks.
• Payments are subject to statutory caps for weekly pay.

If you do not receive forms or information, you can contact the insolvency practitioner directly or check company status on Companies House to find contacts.

Time Limits and Tribunal Claims

If the insolvency practitioner disputes your eligibility for a payment (for example, if they claim you were not employed or not made redundant), you may need to pursue a claim through an Employment Tribunal. Time limits are strict:

• For most money-owed claims, you must start the tribunal process (after appropriate statutory steps) within three months minus one day from the date employment ended.

In some cases, if your employer has not formally recognised redundancy, a tribunal may need to determine that redundancy occurred before you can claim statutory redundancy pay through the RPS.

Practical Steps After Insolvency or Redundancy

1. Confirm Insolvency Status and Practitioner Contact
Check if your employer is officially in administration or liquidation (for companies, this can be confirmed via Companies House) and obtain the contact details of the appointed insolvency practitioner.

2. Gather Documentation
Keep copies of your employment contract, payslips, last correspondence, details of hours worked, holiday records and redundancy letters. These will support your statutory payment claims and any tribunal submissions.

3. Submit Claims Promptly
Use the appropriate forms provided by the insolvency practitioner to make your redundancy, unpaid wages, holiday and notice pay claims with the RPS. Ensure you include your CN and other reference numbers.

4. Consider Tribunal Options if Necessary
If your claim is rejected or disputed, consider whether a tribunal claim is necessary to assert your rights. Tribunal claims require careful preparation, strict time limits and may be subject to statutory conciliation requirements.

Common Questions

Can I claim statutory redundancy pay if the company is insolvent?
Yes, if you have the requisite continuous service and were dismissed because of redundancy, you can claim statutory redundancy payments through the RPS, subject to statutory caps and conditions.

What if I'm still employed when the company enters administration?
If the administrator continues trading, you may remain employed and paid; if later made redundant, you can still claim statutory entitlements. Employment contracts may also transfer under TUPE if the business is sold.

Are there limits on what I can claim?
Yes. Statutory claims for unpaid wages, holiday, notice pay and redundancy are subject to maximum weekly pay caps and limits on weeks eligible for payment.

Do I need to go to a tribunal to claim some payments?
Not usually. Many statutory entitlements can be claimed directly through the RPS, but if the insolvency practitioner disputes your claim (for example, whether you were employed or entitled to redundancy), a tribunal may be necessary.

Key Takeaways

Employees in England and Wales affected by company insolvency or administration have statutory protections to recover certain monies owed, including statutory redundancy pay, unpaid wages, holiday pay and notice pay. These claims are usually made to the Redundancy Payments Service using reference numbers provided by the insolvency practitioner and are subject to statutory caps and eligibility conditions. If claims are disputed, employees may need to pursue an Employment Tribunal claim within strict time limits. Understanding your rights, timelines and available processes helps protect your financial interests when an employer becomes insolvent.