Your rights if your employer is insolvent :Cross Stitch – Employment

If your employer becomes insolvent you have a number of options open to you. Find out what insolvency is, what to do if you are owed money by an insolvent employer and how insolvency affects your employment status.

Insolvency is where an employer has no money to pay the people they owe in full and they have to make special arrangements to try to meet these debts.

There are different names for different types of insolvency, and for the people who handle them.

If your employer is a company, or a limited liability partnership, insolvency means one of the following:

  • administration
  • liquidation
  • receivership
  • voluntary arrangement with creditors

If your employer is an individual, insolvency means one of the following:

  • bankruptcy (sequestration in Scotland)
  • voluntary arrangement with creditors

It is not an insolvency if your employer stops trading without one of the above happening, or a company is struck off the register of companies (dissolved).

Even if your employer cannot pay you, they might want you to carry on working for them while they try to sell the business. If you continue working and your employer’s business is transferred, your employment rights are protected, including any pay that is owed to you.

It is possible your employer is not officially insolvent but they still cannot pay you. In this case, they could be forced to lay you off or put you on short time.

Sometimes a business may keep running if there is a chance that all or some of the business can be made workable or be sold on to a new owner.

If this happens, you may be asked to continue working. This does not affect your rights to redundancy pay if the firm closes down later.

Usually someone called an ‘insolvency practitioner’ or ‘official receiver’ is appointed to deal with the insolvency. They will be in charge of the case and could act as one of the following:

  • administrator
  • liquidator
  • receiver
  • supervisor (of a voluntary arrangement)
  • trustee (in bankruptcy)

You can claim for all your outstanding pay from the insolvency practitioner. There is no guarantee that the full amount you are owed will be paid as this depends on whether enough funds are raised from the sale of your employer’s assets.

Some debts, including holiday pay and wages, will be ‘preferential debt’ when your employer’s assets are shared out. This means they must be paid before certain other debts.

As full payment cannot be guaranteed, there are special arrangements for employees to claim the basic minimum of debts owed to them from the National Insurance Fund. These claims are:

  • redundancy
  • wages – up to a maximum of eight weeks
  • holiday pay – up to a maximum of six weeks
  • compensatory notice pay – one week after one calendar month’s service rising to one week per year of service up to a maximum of 12 weeks (new earnings will be taken into account)

There is a limit of £400 a week (£430 a week from 1 February 2024) on the amount you can claim for your weekly pay.

For general enquiries about insolvency, call the Insolvency Service Helpline or you can fill out an enquiry form on The Insolvency Service website.

For queries about redundancy payments from insolvent employers, call the Redundancy Payments Helpline.