What happens to employees in liquidation?

In liquidation, employees are automatically dismissed because the company ceases trading. This can be a stressful and uncertain time for staff, but UK law provides protections. Employees may claim statutory redundancy pay, unpaid wages, holiday pay, and notice pay from the government’s Redundancy Payments Service. These claims are subject to limits, but they provide essential financial support when the employer cannot pay. Employees are also treated as preferential creditors for certain amounts of unpaid wages and holiday pay, meaning they are repaid before unsecured creditors during the liquidation process. For directors, managing communication with employees is important to ensure they understand their rights and can access government schemes quickly. In Members’ Voluntary Liquidation (MVL), employees are paid in full as the company is solvent, but in insolvent liquidations, staff often face significant losses. While liquidation inevitably means job losses, the statutory protections aim to soften the financial impact on employees.