When a licensed Insolvency Practitioner is appointed and a formal procedure is entered, employees are often the first to feel the impact, from a change in management, to redundancy, to a transfer to a new employer.
Appointing a licensed Insolvency Practitioner signals change and marks the beginning of a new chapter, or the end of an old one, with employees at the forefront. Only a licensed Insolvency Practitioner, authorised by a recognised professional body such as the Insolvency Practitioners Association (IPA) or the Institute of Chartered Accountants in England and Wales (ICAEW), can carry out formal insolvency procedures under the Insolvency Act 1986.
What happens to employees under each procedure?
| Procedure | Impact on employees | The Insolvency Practitioner's role |
| Company Voluntary Arrangement (CVA) | Employees continue in their roles as the business keeps trading | The supervisor's duty is only to oversee compliance of the CVA, not to make any business or staffing decisions |
| Administration | Employment continues while the administrator assesses whether the business, or part of it, can be rescued or must be sold; redundancies are made only where strictly necessary | The administrator has a statutory duty to consider all rescue options before making redundancies, and must fulfil collective consultation requirements, where necessary |
| Creditors' Voluntary Liquidation (CVL) | Employment usually ends once trading stops, as the liquidator's role is to realise assets and close the company | The liquidator identifies preferential wage and holiday pay claims, payable by the Redundancy Payments Service |
| Compulsory liquidation | Employment usually ends immediately once the winding up order is issued, this is often with little warning | The Official Receiver, and any licensed Insolvency Practitioner appointed afterwards, notify employees and support their claims |
| Members' Voluntary Liquidation (MVL) | As the company is solvent, the liquidator manages an orderly exit | The liquidator ensures all entitlements, including outstanding staff pay, are settled before the company is dissolved |
Where a large employer initiates 20 or more redundancies within a 90-day period, usually as part of an administration process, the Insolvency Practitioner must run a collective consultation process and notify the Secretary of State using Form HR1. If employees are not properly consulted, there are serious financial repercussions.
Will employees still get paid what they're owed?
Employees are treated as preferential creditors for unpaid wages. Where the company cannot pay these amounts, employees can claim statutory redundancy pay, notice pay, and outstanding wages from the Redundancy Payments Service, funded through the National Insurance Fund. The Insolvency Practitioner is required to refer these claims to the Redundancy Payments Service.
Pension contributions owed by the company are also treated as preferential, in the same way as wages and holiday pay. Where a workplace pension scheme is affected, the Insolvency Practitioner works with the scheme's trustees, and, where relevant, the Pension Protection Fund, to protect members' accrued benefits.
Directors themselves can also have a claim. Where a director also holds a contract of employment with the company, rather than acting solely in their capacity as director, they may be entitled to director redundancy pay from the Redundancy Payments Service, like any other employee.
What happens to staff if the business is sold?
Where a business is sold as a going concern, employees who transfer to the buyer are usually protected under the Transfer of Undertakings (Protection of Employment) Regulations, better known as TUPE. Structuring a sale in this way is one of the powers a licensed Insolvency Practitioner holds as administrator, allowing them to negotiate and complete the transfer of a business while it is still trading. TUPE also protects employees from any discrimination because of the transfer itself. The rules may be different for pension rights.
When a director first enquires, if they employ staff, one of the first questions they will usually ask is, what happens to my employees once you’re appointed? The answer depends on the procedure. Most insolvency procedures can be undertaken with minimal to no disruption to employees. Where disruption is inevitable, such as where redundancies are involved, we act with extreme care, with confidentiality at the heart of what we do.
There was a case where a city centre gym was facing imminent insolvency due to a severe cash flow shortfall. The company had exhausted cash reserves and trading revenue was no longer sufficient to meet ongoing obligations. With seven jobs on the line and hundreds of members holding pre-paid memberships, the best course of action was a sale, rather than a disorderly insolvency. As part of a pre-packaged sale, all employees were successfully transferred under TUPE.
Find a licensed Insolvency Practitioner
If you're worried about what happens to your employees, a licensed Insolvency Practitioner can explain your options and the legal duties towards your staff. When seeking professional insolvency advice, speak with an Insolvency Practitioner licensed to give qualified advice. To find a licensed Insolvency Practitioner near you, use our leading directory with coverage nationwide.
When should a director seek professional advice?
For directors carrying significant tax arrears, whether that is an overdue VAT bill, a PAYE shortfall, or corporation tax that has been deferred since the pandemic, professional insolvency advice must be sought without delay.
The clearest trigger is correspondence from HMRC indicating that a Time to Pay arrangement is at risk, that a debt has been passed to a field force officer, or that a winding up petition is being considered. At any of these stages, speaking to a licensed Insolvency Practitioner is appropriate.
However, the directors who tend to achieve the best outcomes are those who seek advice before HMRC reaches that point. A licensed Insolvency Practitioner works with business directors carrying HMRC debt on a regular basis. They understand how HMRC operates, their appetite for debt negotiations, and how a company's tax position fits into its broader financial picture.
