This guide is maintained as a current resource for September 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Discover the legal consequences of company insolvency for employees in England and Wales. This detailed guide explains redundancy rights, statutory entitlements such as unpaid wages and holiday pay, claims to the National Insurance Fund, Employment Tribunal procedures, time limits, and protections under TUPE when a business transfers during insolvency. Essential information for workers affected by employer insolvency.
Company Insolvency and Its Impact on Workers
When a company in England and Wales becomes insolvent, the legal consequences for employees can be significant. Insolvency - a situation where a business can't pay its debts as they fall due - often leads to formal procedures such as administration or liquidation. These events affect employment contracts, employee entitlements, and rights under employment law. This guide explains those consequences in clear, accessible terms, covering statutory entitlements, legal protections, claims processes, and key practical considerations for employees facing the insolvency of their employer.
What Is Insolvency and How Does It Affect Employment Contracts?
A company becomes insolvent when it cannot pay its debts when due or its liabilities exceed its assets. In such cases, insolvency practitioners are appointed to manage the company's affairs, either to rescue it (in administration) or to realise assets and distribute the proceeds to creditors (in liquidation). Employment contracts do not automatically disappear on insolvency, but they are typically brought to an end when redundancy occurs or the business closes. Employees may also be asked to continue working under the insolvency process if the business is still trading, in which case their employment continues until terminated or transferred.
Redundancy and Termination of Employment
Redundancy by Virtue of Insolvency
When a company enters insolvency and can no longer continue trading, employees are often made redundant. Redundancy occurs when the employer ceases or intends to cease the business at the place where the employee was employed or reduces the workforce because the work has diminished. Employees whose roles are terminated because of insolvency can be classed as redundant under the Employment Rights Act 1996.
Redundancy Payments
Employees who have worked continuously for two years or more with their employer may be entitled to a statutory redundancy payment. The amount is calculated based on age, length of service and weekly pay, subject to statutory caps. These payments are capped at a weekly rate determined by government guidance.
If the employer cannot pay these amounts, employees can claim statutory redundancy and related payments from the Redundancy Payments Service (part of the government's National Insurance Fund) once the insolvency practitioner provides a case reference.
Outstanding Wages and Entitlements
Insolvency may leave employees owed money for work already performed. Employees can apply for several categories of payment:
- Unpaid wages and contractual entitlements (such as overtime, bonuses and commission) for up to eight weeks prior to insolvency;
- Holiday pay accrued but untaken in the 12 months before insolvency, payable up to a maximum of six weeks;
- Statutory notice pay for the notice period employees would have served, subject to statutory weekly caps; and
- Statutory redundancy payments, as explained above.
The Redundancy Payments Service issues payments for these entitlements from the National Insurance Fund if the insolvent company cannot meet them.
Consultation and Procedural Rights
Employer Consultation Obligations
In normal circumstances, employers considering redundancy must consult with employees or their representatives, particularly when making 20 or more employees redundant at one establishment. A failure to consult properly can lead to claims for compensation known as protective awards enforceable through an Employment Tribunal. Insolvency does not negate the employer's duty to consult meaningfully with affected employees about redundancy proposals, even if practical opportunities for consultation are limited.
Employees can claim protective awards when the consultation process fell short of statutory requirements, and in some cases this may become part of an insolvency claim to the National Insurance Fund or a tribunal claim.
Continuation of Employment During Insolvency
In some insolvency scenarios, such as administration or a business sale, employees may be asked to continue working. In these cases:
- Contracts of employment may continue under an administrator or new employer if the business is transferred (such as in a pre‑pack sale).
- Rights under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) may apply, protecting terms and continuity of employment where a business transfers as a going concern. However, whether TUPE applies depends on timing and the nature of the transfer in insolvency.
- Payments owed during this continuation period are treated differently depending on whether the transfer occurred before or after formal insolvency began, with the Redundancy Payments Service often stepping in for monies owed in insolvency cases.
Claiming Payment from the National Insurance Fund
If the insolvent company is unable to pay employees directly, eligible employees can apply to the Redundancy Payments Service for statutory entitlements. To do so, employees need:
- A case reference number from the insolvency practitioner or official receiver.
- To apply within statutory time limits: for redundancy payment claims, usually within six months of the date employment ends; and for holiday or notice pay claims within set periods after the insolvency practitioner issues reference details.
If an application is rejected, employees typically have three months from the date of rejection to appeal the decision to an Employment Tribunal, challenging whether they are owed the payment under statutory entitlements.
Transfers and Insolvency Employment Protection
Under TUPE and related regulations, when an insolvent business or part of it is sold to a new employer as a going concern:
- Employees generally transfer automatically with their existing terms and conditions;
- Employees retain continuous service for statutory entitlements such as redundancy;
- Claims for historical unpaid entitlements can often be made against the National Insurance Fund if the transfer occurs after insolvency starts.
If a transfer occurs before insolvency is established, employees may lose access to the National Insurance Fund for statutory entitlements owed before the transfer date and should instead seek payment from the new employer.
Employment Tribunal Claims and Compensation
In addition to statutory redundancy and entitlement claims, employees may have rights to pursue:
- Unfair dismissal claims, if their dismissal was not substantively or procedurally fair, though insolvency can affect how such claims proceed and against whom they are brought;
- Protective awards for failure to consult adequately on redundancies;
- Claims for statutory entitlements under employment law through an Employment Tribunal, particularly where statutory requirements are breached.
Importantly, claims for statutory entitlements through tribunals often name the Secretary of State for Business and Trade along with the insolvent employer as respondents, recognising that liabilities may be met from government funds where the employer cannot pay.
Time Limits and Practical Steps
Employees should be aware of key time limits for insolvency‑related claims:
- Six months from termination to apply for redundancy and other statutory payments from the Redundancy Payments Service;
- Three months from rejection of an application to challenge a decision at an Employment Tribunal; and
- Tribunal claims for protective awards typically must be lodged within three months from the date on which redundancy occurred.
For practical guidance:
- Obtain your case reference number from the appointed insolvency practitioner as soon as employment is terminated.
- Check eligibility for statutory entitlements including redundancy, unpaid wages, holiday pay and notice pay.
- Submit applications promptly to the Redundancy Payments Service within statutory deadlines.
- Consider tribunal claims for statutory protection breaches if consultation or dismissal rights were not observed.
Key Takeaways
Company insolvency in England and Wales has significant legal consequences for employees. Employment contracts are typically terminated by redundancy, but employees have statutory rights to claim unpaid wages, holiday pay, notice pay and redundancy from the National Insurance Fund if the insolvent company cannot pay. Entitlements are subject to caps and time limits, and procedural protections such as consultation obligations and transfer rights under TUPE may apply, affecting both claims and employment continuity. Employees should engage promptly with the insolvency process, obtain a case reference from the insolvency practitioner, and pursue statutory applications and tribunal claims when necessary to secure their entitlements.
