Law guide: Workplace

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If your employer becomes insolvent

If your employer becomes insolvent

If your employer becomes insolvent

If your employer becomes insolvent, you have a number of options open to you. This article gives details of what to do if you're owed money by an insolvent employer and how insolvency affects your employment status.

What is insolvency?

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. Usually an insolvency practitioner or official receiver is appointed to deal with the insolvency.

Types of insolvency

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 administration, liquidation, receivership, or a voluntary arrangement with creditors.
  • If your employer is an individual, insolvency means bankruptcy or a voluntary arrangement with creditors.

The insolvency practitioner can be called by one of the following terms depending on the type of insolvency:

  • Administrator
  • Liquidator
  • Receiver
  • Supervisor (of voluntary arrangement)
  • Trustee (in bankruptcy)

How to claim

The insolvency practitioner will normally send you the necessary forms for claiming any money you are owed. If this doesn't happen, write to the insolvency practitioner setting out your claims. They should tell you how to claim payments from the Redundancy Payments Office and HM Revenue and Customs (HMRC).

If you don't know who the insolvency practitioner is, see 'What to do next' and 'Where to get help' below.

There is no guarantee in an insolvency that all the debts can be met in full. That is why there are special arrangements to ensure that you receive a basic minimum of the debts owed from the National Insurance Fund.

Who will pay you?

The Insolvency Service's Redundancy Payments Offices are responsible for paying the following claims:

  • Redundancy pay
  • Wages (including protective awards)
  • Holiday pay
  • Notice pay
  • Basic award for unfair dismissal
  • Unpaid pension contributions

HMRC are responsible for the following claims (for entitlement continuing on after the insolvency date) and you can get the necessary claim forms for these from any Jobcentre:

  • Maternity pay
  • Paternity pay
  • Adoption pay
  • Statutory sick pay

What you can claim

  • Redundancy (see section on redundancy below)
  • 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)

For these purposes, a week's pay is capped at a maximum amount.

Debts of pay remaining after payment from the National Insurance Fund may become payable only if sufficient funds are realised from the company's assets.

Some debts, including holiday pay and wages, will be a 'preferential debt' when the assets of your employer are shared out – meaning that they must be paid before certain other debts.

What 'pay' includes

'Pay' includes commission, overtime and guarantee payments. It also includes statutory payments for time off work, or suspension for medical or maternity reasons.

From which date are payments worked out?

Holiday pay and wages are worked out up to the date of insolvency. Redundancy and notice pay are worked out from either the date your employer became formally insolvent or when your employment ended – whichever is later.


If you and other employees have been paying into a workplace pension scheme, the pension fund trustees can apply to the Secretary of State for some of your employer's unpaid contributions to be paid into the scheme.


If your employer's insolvent and makes you redundant, you may be able to claim a statutory redundancy payment, provided you do so within six months of being dismissed.

For more information, see our 'Redundancy' section.

Transfer of an insolvent business

Even if your employer can't pay you, they might want you to carry on working for them while they try to sell the business. If you decide to stay on and they're successful, the law protects your contract of employment, including any pay that's owed to you.

If you continue working and your employer's business is transferred, the new owner takes over the obligation to pay what is owed to you.


It's possible your employer isn't officially insolvent but still can't pay you. In this case, they may be forced to lay you off or put you on short time.

Working for an administrator, receiver or liquidator

Sometimes the insolvency practitioner may keep the business running if, for example, 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. Your rights to a redundancy payment are not affected if the firm closes down later.

What to do next

If the business you work for has closed, you need to find out if your employer's insolvent or just in difficulty. Companies House holds trading details on its register of companies, and you can get information on people who are declared bankrupt from the Insolvency Service.

If the company's still trading but you are not getting paid, you may be able to complain to an Industrial Tribunal that there's been an unlawful deduction from your pay.

If you dispute the amount of payment made from the National Insurance Fund, you can take the matter to an Industrial Tribunal.

Where to get help

For general enquiries about insolvency, call the Insolvency Service.

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