Employees and Redundancy
If your Scottish company is going into liquidation and employs staff, you will need to consider what happens to their jobs and any money the company owes them.
Where a business closes through insolvent liquidation, employees will often be made redundant. Eligible employees can normally claim certain statutory payments from the Insolvency Service rather than relying solely on the company having enough cash to pay them.
Potential claims can include redundancy pay, unpaid wages, holiday pay and statutory notice pay, subject to eligibility rules and statutory limits.
Employment issues should be considered before the liquidation where possible, particularly if the company employs 20 or more people or there is a possibility that all or part of the business may continue elsewhere.
What happens to employees when a company goes into liquidation?
If the company is closing and there is no continuing work for its employees, they will normally be made redundant.
That may happen before the liquidation begins, when the liquidator is appointed or shortly afterwards, depending on the circumstances.
In some cases employees may temporarily remain employed—for example, if trading continues for a short period to complete work, realise assets or facilitate a sale.
The precise timing should therefore be considered as part of the liquidation planning rather than assuming every employment contract must end on exactly the same date.
Who tells employees what is happening?
Before liquidation, responsibility for communicating with employees remains with the company and its directors.
Once the liquidator is appointed, the insolvency practitioner will explain how employees are affected and provide the information they need to make qualifying claims.
Employees who are made redundant will normally receive:
- Confirmation of what has happened to their employment
- Information about claiming money owed
- An insolvency case reference beginning with CN
- Guidance on applying through the Insolvency Service
Clear communication is particularly important where staff have not been paid or the closure has occurred suddenly.
What can employees claim when their employer is insolvent?
Eligible employees may be able to claim several types of payment from the Insolvency Service.
- Statutory redundancy pay
- Unpaid wages and certain other contractual payments
- Holiday pay
- Statutory notice pay
The payments come from the National Insurance Fund, subject to statutory eligibility criteria and limits.
If an employee is owed more than the Insolvency Service is able to pay, the unpaid balance may also form part of their creditor claim in the liquidation.
Who qualifies for statutory redundancy pay?
An employee will normally need at least two years’ continuous employment with the company to qualify for statutory redundancy pay.
The amount depends on the employee’s:
- Age
- Length of continuous service
- Qualifying weekly pay
The calculation normally provides:
- Half a week’s pay for each complete year when the employee was under 22
- One week’s pay for each complete year when aged 22 to 40
- One and a half week’s pay for each complete year when aged 41 or over
A maximum of 20 years’ service is included.
For redundancies on or after 6 April 2026, qualifying weekly pay is currently capped at £751, giving a current maximum statutory redundancy payment of £22,530.
What happens to unpaid wages?
Employees may be able to claim qualifying wages and other contractual remuneration that the insolvent company has not paid.
This can include items such as:
- Normal wages or salary
- Overtime
- Commission
- Some contractual bonuses
The Insolvency Service can currently pay up to eight weeks of qualifying amounts, subject to the statutory weekly cap.
Amounts that exceed the statutory scheme may remain claims against the company in liquidation.
What about holiday pay?
Eligible employees can claim qualifying holiday pay where they:
- Have accrued holiday but not taken it; or
- Took holiday but were not paid for it
The government scheme currently covers up to six weeks of qualifying holiday pay, subject to the statutory weekly cap.
The entitlement relates to holiday taken or accrued within the relevant period before the employer became insolvent.
Can employees claim notice pay?
Potentially, yes.
An employee is normally entitled to statutory notice when their employment is terminated.
Statutory notice is generally one week for each complete year of employment, up to a maximum of 12 weeks.
If the employee does not work or receive payment for the full statutory notice period, they may be entitled to make a separate claim for loss of notice pay.
The employee must first make the main claim for redundancy and other amounts owed. The Insolvency Service then provides a separate claim reference for loss of notice pay when the appropriate time is reached.
Benefits and earnings during the notice period can affect the amount ultimately paid.
What if the company has no money to pay redundancy?
This is common in insolvent liquidation.
The company does not need to have enough cash available to fund every qualifying employee redundancy payment before it can enter a CVL.
Where the company is formally insolvent, eligible employees can claim qualifying statutory amounts through the Insolvency Service.
This is an important distinction because directors sometimes use scarce personal or company funds to try to pay redundancy liabilities before taking insolvency advice.
Before introducing personal funds or making selective payments, establish which liabilities are capable of being dealt with through the statutory insolvency scheme.
How do employees make their claims?
Once they have been made redundant and the company is in formal insolvency, eligible employees can apply online through the Insolvency Service.
They will normally need:
- The company’s insolvency CN reference
- Their National Insurance number
- Bank details
- Employment start and end dates
- Details of their pay
- Details of wages or other money owed
- Holiday entitlement and holiday taken
The application for redundancy pay, wages and holiday should normally be made within six months of dismissal.
The statutory notice claim follows separately.
How long does the Insolvency Service take to pay employees?
Current government guidance says payments usually take up to six weeks after the claim is made, although some claims can take longer.
The Insolvency Service checks applications against company employment records, so accurate payroll and holiday records can help reduce delays.
Different elements of a claim may also be paid separately rather than as one single payment.
What records should directors preserve for employees?
Employment records are important both for the liquidation and for staff claims.
Directors should preserve:
- Payroll records
- Payslips
- Employee contracts
- P60 and PAYE information
- Holiday records
- Details of wages outstanding
- Employment start dates
- Normal working hours
- Pension information
- Redundancy and consultation correspondence
Do not dispose of payroll records merely because trading has ceased. The insolvency practitioner and Insolvency Service may need them to verify employee claims.
Do directors have to consult employees about redundancy?
Employers should consult employees about proposed redundancies and consider whether there are realistic alternatives.
The requirements become particularly important where 20 or more redundancies are proposed at one establishment within a 90-day period.
In those circumstances, collective consultation obligations can apply in addition to individual consultation.
Where fewer than 20 redundancies are proposed, the statutory collective consultation regime does not normally apply, but a fair redundancy process and appropriate individual consultation can still be important.
What are the rules if 20 or more employees may be made redundant?
If the company proposes to dismiss 20 or more employees as redundant at one establishment within 90 days or less, collective redundancy rules can apply.
The current minimum consultation periods are:
- 20 to 99 proposed redundancies: consultation should begin at least 30 days before the first dismissal
- 100 or more proposed redundancies: consultation should begin at least 45 days before the first dismissal
The company must also normally notify the government’s Redundancy Payments Service of the proposed redundancies using the HR1 process.
That notification should be made before individual redundancy notices are issued and within the applicable 30 or 45-day period.
These obligations should be considered urgently where a company with a larger workforce is heading towards insolvency.
Does insolvency remove the consultation requirements?
No.
There is no automatic exemption from collective redundancy requirements merely because the employer is insolvent.
In rare circumstances, a sudden and genuinely unexpected insolvency may make full compliance impossible and a special-circumstances defence may potentially be relevant.
However, even where compliance is not reasonably practicable, the employer is expected to take such steps towards consultation as are reasonably possible in the circumstances.
A company that has known for some time that closure and redundancies are likely should therefore not assume insolvency will excuse a failure to start consultation.
If your company is approaching liquidation with 20 or more employees, employment-law advice should be obtained at an early stage.
What is a protective award?
A protective award can be made by an Employment Tribunal where an employer has failed to comply with collective redundancy consultation requirements.
For relevant dismissals from 6 April 2026, the maximum tribunal award increased to 180 days’ full pay for each affected employee.
This is separate from ordinary statutory redundancy pay.
Where the employer is insolvent, the Insolvency Service can make qualifying payments in relation to a tribunal protective award, although the amount payable from the National Insurance Fund is itself subject to statutory limits and is currently capped at eight weeks’ pay.
For companies with 20 or more employees, redundancy consultation should therefore be treated as a significant issue rather than an administrative formality.
What happens to employee pension contributions?
If employee or employer pension contributions are outstanding when the company becomes insolvent, employees should inform the insolvency practitioner.
The treatment depends on the type of pension arrangement, the contributions involved and the relevant statutory rules.
Directors should therefore preserve payroll and pension records and make details of any unpaid contributions available to the liquidator.
What about contractors and self-employed workers?
The Insolvency Service employee payment scheme is principally for people who were employees of the insolvent business.
A genuinely self-employed contractor or company supplying services will normally need to submit a creditor claim in the liquidation instead.
Employment status can sometimes be disputed, so the description used in a contract is not always the only relevant factor.
Can employees transfer to a new company?
Potentially.
If the business or part of it is sold or transferred, employment-transfer rules may become relevant.
The rules applying to employees in an insolvency-related business transfer are technical and can differ depending on the type of insolvency and structure of the transaction.
Do not assume that employees automatically become redundant simply because assets or a business are being sold to another company.
If directors are considering continuing the business through a new company and retaining staff, obtain employment advice before agreeing the transaction.
Can directors themselves claim redundancy?
Potentially.
A director can also be an employee of the company.
If a genuine employment relationship existed and the relevant eligibility requirements are satisfied, an owner-director may be entitled to make their own claim for redundancy and other employment-related payments.
Director claims are considered individually by the Insolvency Service and usually require additional evidence about the employment relationship.
What should directors do about employees before a CVL?
If the company employs staff and liquidation appears likely, gather the employment information before the formal process begins.
- Prepare an up-to-date employee list
- Confirm employment start dates
- Bring payroll records up to date
- Identify wages outstanding
- Calculate accrued holiday
- Locate employment contracts
- Identify pension contributions outstanding
- Consider whether any staff may need to remain temporarily
- Consider consultation obligations
- Check immediately whether 20 or more redundancies may trigger collective consultation and HR1 requirements
- Preserve all employment and payroll records
The insolvency practitioner can then incorporate the employee position into the proposed liquidation timetable.
Employees and Liquidation FAQs
Do employees lose their redundancy entitlement if the company has no money?
No. Eligible employees of a formally insolvent employer can claim qualifying statutory payments from the Insolvency Service, subject to the applicable rules and limits.
Does everyone qualify for redundancy pay?
No. Statutory redundancy pay normally requires employee status and at least two years’ continuous employment. Other types of claim have different eligibility requirements.
What is the current weekly limit?
For redundancies on or after 6 April 2026, the current statutory weekly cap is £751.
Can employees claim unpaid wages?
Eligible employees can currently claim up to eight weeks of qualifying unpaid wages and other contractual remuneration, subject to the statutory weekly cap.
Can employees claim holiday pay?
Eligible employees can currently claim up to six weeks of qualifying holiday pay, subject to the statutory rules and weekly cap.
Can employees claim notice pay?
Potentially. Statutory notice is generally one week per complete year of qualifying employment up to a maximum of 12 weeks, and loss of notice is claimed separately.
Do staff need the liquidator before they can claim?
Employees making an insolvency claim need the CN case reference connected with the formal insolvency. The insolvency practitioner provides the relevant information after the insolvency has commenced.
Do we have to consult employees if the company is insolvent?
Insolvency does not automatically remove redundancy consultation requirements. This becomes particularly important where 20 or more redundancies are proposed at one establishment within a 90-day period.
Do I need to submit an HR1?
If 20 or more redundancies are proposed at one establishment within 90 days, the employer will normally need to notify the Redundancy Payments Service through the HR1 process. Obtain advice promptly because statutory notification periods apply.
Can staff work for a new company afterwards?
Potentially. If a business is transferred rather than simply closed, employment-transfer rules may apply and should be considered before the transaction takes place.
Need to close a Scottish company that employs staff?
Employee liabilities can look daunting, particularly where the company does not have enough cash to pay final wages, holiday, notice and redundancy itself.
We can explain how employee claims are dealt with in a Scottish CVL, identify the records required and help you plan the timing of the liquidation and redundancies.
If the workforce is large enough for collective consultation requirements to apply, we will identify the issue so that specialist employment advice can be obtained where necessary.