What happens if my employer becomes insolvent?

Despite various business-saving measures, as the COVID-19 crisis continues, it’s increasingly likely that more businesses may confront the realities of insolvency.

If your employer is unable to pay creditors it may have to enter a formal insolvency process.

Depending on which path your employer takes next, the insolvency process affects your employment status and rights.

  • How do I recognise formal insolvency?
  • How does insolvency affect me as an employee?
  • What statutory compensation am I entitled to if I lose my job?
  • What happens if I am asked to continue working?
  • What happens if I am transferred to new owners?
  • What other payments may I be entitled to?
  • How do I make a claim?

How do I recognise formal insolvency?

If your employer is struggling to pay debts, it may need to consider recovery processes or rescue arrangements.

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

  • administration
  • liquidation (Compulsory or CVL)
  • receivership
  • company voluntary arrangement (CVA)

If your employer is an individual, insolvency may be managed via:

  • bankruptcy
  • individual voluntary arrangement (IVA)

How does insolvency affect me as an employee?

Your rights depend on the insolvency process at play. The company may:

  • make you redundant
  • ask you to continue working
  • transfer you to a new employer (if the business is sold)

An ‘insolvency practitioner’ or ‘official receiver’ will manage the process. They will tell you how your job is affected and what to do next.

If you are made redundant from your position you will be entitled to claim your contractual entitlements from the Company.  Most likely, the Company will not be in a position to pay any sums to you, in which case you can claim for all your statutory entitlements from the Redundancy Payments Service, which the appointed insolvency practitioner will facilitate.


Depending on your situation, you may be eligible to apply for:

  • a redundancy payment
  • holiday pay – up to six weeks maximum
  • outstanding payments like unpaid wages (up to eight weeks), overtime and commission
  • money you would have earned working your notice period (‘statutory notice pay’ – up to 12 weeks)

Any shortfall between your contractual and statutory entitlements will rank for payment in the insolvency proceedings.  Whether any dividend is paid to you for this shortfall will depend on whether the insolvency process achieves sufficient returns.

If your employer enters a formal insolvency process and you have money owed to you, visit the ‘Claim for redundancy and monies owed’ service on GOV.UK.

Where a company stops trading or is struck off (dissolved) and not classed as insolvent, you are not entitled to claim unpaid monies – in this instance, you may make a claim through an employment tribunal.

Check the insolvency status of organisations here: Check if your employer is insolvent.

What statutory compensation am I entitled to if I lose my job?

You are entitled to redundancy pay if you were continuously employed by the insolvent business for two years or more.

The amount of compensation depends on:

  • how long you were employed
  • your employment contract terms
  • your age

Payments are capped at £538 per week (financial year 20/21).

Read more about the redundancy process and estimate your entitlement at the Government website: Calculate your redundancy pay.


Your employer should, where possible, consult with you about why redundancies are happening and if there are any alternatives.

If you think you were dismissed unfairly or not consulted properly, you may also apply to the court (employment tribunal) for compensation.


You are entitled to a paid notice period when you’re made redundant, even if it is not in your contract. You can claim for statutory notice pay if you:

  • did not work a notice period
  • worked some of your notice period
  • worked an unpaid notice period

If you have been employed for two years or more your statutory notice pay is worked out as one week’s notice for every year you were employed, up to a maximum of twelve weeks.  If you have been employed for more than one month but less than 2 years you are entitled to one week’s notice.

Payments are capped at £538 per week (financial year 20/21).

Unemployment benefits

If you lose your job, you may also be eligible for unemployment benefits. You must apply for unemployment benefits to ensure you receive your full your statutory notice pay entitlement.

What happens if I am asked to continue working?

If you are asked to remain with the employer after they become insolvent, you’ll still be eligible to claim redundancy pay and other money you’re owed (that accrued before the insolvency) if you’re made redundant at a later date.

What happens if I am transferred to new owners?

If your employment is transferred to new owners of the business, TUPE Regulations will apply and the new owners will inherit the contractual obligations. You will enjoy continuous employment.

What other payments may I be entitled to?

You can apply for unpaid wages and other money owed to you such as bonuses, overtime and commission – as detailed in the terms of your employment contract.

You can claim for a maximum of 8 weeks arrears of pay.

You may also claim for holiday days owed in the 12 months before insolvency, that you did not take (holiday pay accrued) of for any days that you took and have not been paid for (holiday pay taken).

Arrears of Pay and Holiday pay are both capped at £538 per week (financial year 20/21).

How do I make a claim?

You can apply if you were an employee and you are a UK or EEA national (or a foreign national with permission to work in the UK).

The insolvency practitioner or official receiver will give you a:

  • RP1 fact sheet
  • ‘CN’ (case reference) number to use when you apply

It can take up to 4-6 weeks to get your payment.

For further guidance, visit https://www.gov.uk/your-rights-if-your-employer-is-insolvent

If you are an employer facing insolvency and would like more information about the processes and how they affect your employees, please contact us for a confidential conversation.