What happens to employees if a company becomes insolvent?

When a company becomes insolvent, employees’ jobs and rights can be significantly affected. In administration, staff may be retained if the administrator believes the business can continue trading or be sold as a going concern. However, redundancies are often made to reduce costs or prepare the business for sale. In liquidation, all employees are automatically dismissed because the company ceases trading. The UK government provides some protection through the Redundancy Payments Service, which allows eligible employees to claim statutory redundancy pay, unpaid wages, holiday pay, and notice pay, subject to limits. These payments are capped but provide vital financial support when an employer cannot meet obligations. Employees may also become preferential creditors for certain unpaid amounts, giving them priority over unsecured creditors. For directors, managing employee communication and ensuring staff can access statutory entitlements is an important part of handling insolvency responsibly. Keeping staff informed throughout the process helps maintain trust and reduces disruption.