What happens to employees when a company closes

When a company becomes insolvent and cannot continue, its employees are made redundant, but they are far from unprotected. If the company cannot pay them, employees can claim a range of statutory payments from the government-backed Redundancy Payments Service, funded by the National Insurance Fund rather than from company assets. These include statutory redundancy pay, unpaid wages, holiday pay and statutory notice pay, each subject to its own cap. Employees with at least two years of continuous service qualify for redundancy pay, and importantly this often includes director-employees who were genuinely employed by the company. For a director worried about their staff, this is reassuring: handling the company through a proper insolvency process is exactly what triggers these protections. This guide explains what employees can claim, how, and what a director needs to do to make sure staff and themselves can access these entitlements. Redundancy Payments Service; gov.uk

What employees can claim

Statutory redundancy pay (with two years' service), unpaid wages, holiday pay and statutory notice pay, each up to a statutory cap, from the Redundancy Payments Service. The money comes from the National Insurance Fund, not company assets.

Directors can often claim too

A director who was genuinely employed under a contract, paid via PAYE, with enough hours and service, can usually claim the same payments. See director redundancy and estimate yours with the calculator.

What the director needs to do

The protections are triggered by a proper insolvency process. A CVL handled by a Licensed Insolvency Practitioner deals with employee claims correctly, which is one reason an orderly process is better for everyone than simply ceasing to trade.

Common questions

Will my staff get paid if my company goes under?

If the company cannot pay them, employees can claim statutory redundancy, unpaid wages, holiday pay and notice pay from the government-backed Redundancy Payments Service, within statutory caps. A proper insolvency process triggers these protections.

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What happens to employees when a company closes. When a company becomes insolvent and cannot continue, its employees are made redundant, but they are far from unprotected. If the company cannot pay them, employees can claim a range of statutory payments from the government-backed Redundancy Payments Service, funded by the National Insurance Fund rather than from company assets. These include statutory redundancy pay, unpaid wages, holiday pay and statutory notice pay, each subject to its own cap. Employees with at least two years of continuous service qualify for redundancy pay, and importantly this often includes director-employees who were genuinely employed by the company. For a director worried about their staff, this is reassuring: handling the company through a proper insolvency process is exactly what triggers these protections. This guide explains what employees can claim, how, and what a director needs to do to make sure staff and themselves can access these entitlements.

Speak to a Licensed Insolvency Practitioner

Tell us briefly what is happening and we will arrange a free, confidential, no obligation call with a Licensed Insolvency Practitioner. The earlier you get advice, the more options you usually have.

Free, confidential and no obligation. We are an independent information service and introduce directors to a Licensed Insolvency Practitioner. This is general information, not regulated advice.