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How will Liquidation affect my employees?

What happens to employees when the company they work for goes into liquidation? 

If it is compulsory liquidation employees’ contracts of employment automatically terminate at the time of liquidation. If it is a voluntary liquidation, employee contracts do not terminate in the same way, generally the director will make the employees redundant prior to winding up.

The rights of employees are not affected by a company going into any form of liquidation and each employee will have to understand what he or she is owed. An employee’s claim can be made up of four main parts and these are listed below as follows:


  • Payment in lieu of any notice period.
  • Holiday pay.
  • Redundancy pay.
  • Any wages that are unpaid.


Whilst the employees right to claim monies owed from the company does not change, the practical problem for employees is how are they going to get paid when the company has no funds, has ceased trading and gone into liquidation?

The good news is that The Redundancy Payments Service (part of the Government’s Insolvency Service Department) has the ability to pay employees for monies owed by a company in liquidation, up to statutory limits. The process is for the appointed liquidator to apply to the Insolvency Service for a case code. Once received this is sent by the liquidator to each of the now, ex-employees with a process of how to use the code to make their claim. Each ex-employee uses the code and submits his or her claim on-line.

The Redundancy Payments Service processes the claim and pays out the employee’s agreed entitlements. There are limits on what the Redundancy Payments Service will pay out and these can be found here.


To arrange a meeting to discuss liquidation or your company’s situation call us on: 01527 839920 or email us on:

Added: 03 Nov 2016 10:16

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The Timothy James Partnership

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Insolvency Practitioners Association
About Us

We are an independent firm of specialist Licensed Insolvency Practitioners located in Bromsgrove, Worcestershire.

At The Timothy James Partnership, we work very closely with local businesses and professionals, providing guidance on formal insolvency procedures and advice on restructuring businesses.

We recognise that at times, companies find themselves in difficult financial circumstances and our aim is to provide practical solutions in these situations.