Redundancy If Company Goes Bust

Introduction

Redundancy if a company goes bust is one of the most stressful situations an employee can face. When a business becomes insolvent, employees are often left uncertain about their jobs, unpaid wages, and what rights they still have. The sudden loss of employment can feel overwhelming, especially when communication from the employer stops or becomes unclear.

At Blackstone Solicitors, we advise employees and employers across England and Wales on insolvency related employment issues, including redundancy when a company fails. While the situation is serious, employees do have legal protections and may be able to recover payments through statutory schemes even if the employer cannot pay.

This article explains what happens when a company goes bust, how redundancy works in insolvency, and what employees can do to protect their position.

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What Does It Mean When a Company Goes Bust?

When a company goes bust, it usually means it has become insolvent. Insolvency occurs when a business cannot pay its debts as they fall due or when its liabilities exceed its assets.

There are different types of insolvency, including:

• Liquidation
• Administration
• Company voluntary arrangements
• Receivership in some cases

In most insolvency situations, the company either closes completely or continues trading under the control of an insolvency practitioner.

For employees, the key issue is whether their job continues or ends as part of the insolvency process.

Are You Automatically Redundant If Your Company Goes Bust?

In many cases, yes, employees are made redundant if a company goes into liquidation and ceases trading.

However, redundancy is not automatic in every insolvency situation.

Liquidation

If the company is placed into liquidation and stops trading, employees are usually dismissed immediately. This is typically treated as redundancy because the employer no longer exists as a functioning business.

Administration

If a company enters administration, it may continue to trade temporarily. Employees might:

• Keep their jobs for a short period
• Be transferred to a new buyer
• Eventually be made redundant if the business is not rescued

In administration, redundancy decisions are often made by an insolvency practitioner.

Who Makes You Redundant When a Company Goes Bust?

When a company becomes insolvent, control usually passes from the directors to an insolvency practitioner.

This person may be:

• A liquidator
• An administrator
• A receiver

They are responsible for managing the company’s assets and liabilities, including employee claims.

If redundancies are necessary, the insolvency practitioner will issue termination notices and manage employee claims.

What Happens to Your Employment Contract?

When a company goes bust:

• Your employment contract usually ends
• You are dismissed, often with immediate effect
• Your right to work ceases
• You may be placed on statutory redundancy or notice arrangements depending on circumstances

In many cases, employment ends without full notice being worked.

However, employees still retain rights to claim unpaid wages and statutory entitlements.

What Payments Are You Entitled to?

Even if your employer is insolvent, you may still be entitled to certain payments.

These include:

1. Statutory Redundancy Pay

If you have at least two years of continuous employment, you may be entitled to statutory redundancy pay. This is calculated based on:

• Age
• Length of service
• Weekly pay (subject to statutory caps)

2. Unpaid Wages

You may be able to claim:

• Outstanding salary
• Commission
• Overtime
• Bonuses (if contractually due)

3. Holiday Pay

Any accrued but untaken holiday must usually be paid.

4. Notice Pay

If you are not given proper notice, you may be entitled to pay in lieu of notice.

The National Insurance Fund

If your employer cannot pay what you are owed, you may be able to claim from the National Insurance Fund.

This government scheme can cover:

• Statutory redundancy pay
• Unpaid wages (subject to limits)
• Holiday pay
• Statutory notice pay

Claims are usually made through the Insolvency Service.

This system ensures that employees are not left completely without financial protection when a company goes bust.

How to Claim Money After Company Insolvency

When a company becomes insolvent, you will usually need to make a claim through the insolvency process.

The steps typically include:

1. Receiving confirmation of insolvency
2. Being informed by the insolvency practitioner
3. Submitting a claim for unpaid entitlements
4. Providing evidence such as payslips or contracts
5. Waiting for approval and payment from the National Insurance Fund or company assets

It is important to keep all employment documents safe.

What Happens to Your Notice Period?

If your company goes bust, your notice period may not be worked in full.

Instead:

• You may receive payment in lieu of notice
• You may be treated as dismissed immediately
• Notice payments may come from the National Insurance Fund

However, payment depends on available funds and statutory limits.

Do You Still Have Employment Rights If the Company Is Insolvent?

Yes. Employees retain important legal rights even when a company goes bust.

These include:

• Protection against discrimination
• Right to redundancy pay (if eligible)
• Right to unpaid wages and holiday pay
• Right to make claims through insolvency processes

However, enforcing rights can be more complex due to the company’s financial position.

What If You Are Still Working When the Company Goes Bust?

If the company continues to trade during administration, you may still be working for a short period.

In this situation:

• Your employment continues temporarily
• Wages should be paid as normal while funds allow
• You may eventually be made redundant
• You may be transferred to a new employer if the business is sold

The future of employment depends on the outcome of the insolvency process.

TUPE and Business Sales During Insolvency

In some cases, parts of a business may be sold during administration. This can involve TUPE, which protects employees when a business transfers to a new owner.

However, insolvency can affect how TUPE applies. In some cases:

• Employees may transfer to a new employer
• Employment terms may be protected
• Redundancies may still occur if roles are not needed

The exact outcome depends on the type of insolvency and the sale structure.

Common Problems Employees Face When a Company Goes Bust

Delayed or Missing Payments

Employees often experience delays in receiving final pay or redundancy payments.

Lack of Communication

Insolvency situations can feel unclear, especially when management steps away.

Uncertainty About Rights

Many employees are unsure what they are entitled to or how to claim it.

Complex Claims Process

Making claims through the Insolvency Service can be confusing without guidance.

Can You Bring an Employment Tribunal Claim?

You may still be able to bring certain claims against an insolvent employer, including:

• Unfair dismissal
• Discrimination
• Unlawful deduction from wages

However, enforcement of any award may be limited due to insolvency. In many cases, claims are still valuable for establishing rights or recovering payments through statutory schemes.

Time Limits in Insolvency Related Employment Claims

Strict time limits apply to employment tribunal claims. Usually:

• Claims must be brought within three months less one day
• Time limits apply even if the employer is insolvent

Acting quickly is important to preserve legal rights.

Practical Advice for Employees

If your company goes bust, you should:

• Keep copies of your contract and payslips
• Save all communication from your employer
• Check your entitlement to redundancy pay
• Submit claims promptly
• Seek legal advice early

Even in insolvency, being organised can improve your chances of recovery.

How Blackstone Solicitors Can Help

At Blackstone Solicitors, we assist employees across England and Wales dealing with redundancy if a company goes bust. Our services include:

• Advice on redundancy and insolvency rights
• Assistance with National Insurance Fund claims
• Employment tribunal representation
• Support with unpaid wages and holiday pay claims
• Advice on TUPE in insolvency situations
• Settlement negotiations where applicable

We provide clear, practical advice in difficult and uncertain circumstances.

Conclusion

Redundancy if a company goes bust can be disruptive and distressing, but employees are not without protection. While insolvency limits what an employer can pay directly, statutory schemes exist to help recover key entitlements such as redundancy pay, wages, and holiday pay.

Understanding your rights and acting quickly is essential. Insolvency situations move fast, and missing deadlines can affect your ability to recover money.

At Blackstone Solicitors, we help employees navigate the legal and practical challenges of redundancy during company insolvency. With the right advice, you can secure your entitlements and take control of an otherwise uncertain situation.

How to Contact Our Employment Law Solicitors

It is important for you to be well informed about the issues and possible implications of Employment Law. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.

To speak to our Employment law solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Please visit our website to see all the Employment Law services we offer: https://blackstonesolicitorsltd.co.uk/employment-law-services/

Authored by Ben Posted in Blog, News Tagged as

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