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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.

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 either:

• administration
• liquidation
• receivership
• voluntary arrangement with creditors

If your employer is an individual, insolvency means either:

• bankruptcy (sequestration in Scotland)
• voluntary arrangement with creditors

Transfer of an insolvent business

Even if your employer cannot pay you, they might want you to carry on working for them while they try to sell the business. If you continue working and your employer's business is transferred, your employment rights are protected, including any pay that is owed to you.

• Business transfers and takeovers (TUPE)

Lay-off

It is possible your employer is not officially insolvent but they still cannot pay you. In this case, they could be forced to lay you off or put you on short time.

• Temporary lay-off

Working for an administrator, receiver or liquidator

Sometimes a business may keep running if 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. This does not affect your rights to redundancy pay if the firm closes down later.

Insolvency practitioners

Usually someone called an ‘insolvency practitioner’ or ‘official receiver’ is appointed to deal with the insolvency. They will be in charge of the case and could act as an:

• administrator
• liquidator
• receiver
• supervisor (of a voluntary arrangement)
• trustee (in bankruptcy)

What you can claim

If your employer is insolvent, you might be able to claim:

• redundancy
• 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)

There is a limit of £350 a week (£380 from 1 October 2009) on the amount you can claim for your weekly pay.

If you are still owed any pay after your claim from the National Insurance Fund, you will only receive the amount if enough funds are released from the company's assets.

Some debts, including holiday pay and wages will be a 'preferential debt' when your employer’s assets are shared out. This means they must be paid before certain other debts.

• Insolvency payment claims

What to do next

If the business you work for has closed, you need to find out if your employer is 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.

• Companies House website Opens new window

• Insolvency Service website Opens new window

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

• Being paid and payslips

• How to resolve a problem at work

Where to get help

For general enquiries about insolvency, call the Insolvency Service Helpline or you can fill out an enquiry form on The Insolvency Service website.

For queries about redundancy payments from insolvent employers, call the Redundancy Payments Helpline.

• Insolvency Service contact details

• Redundancy Payments Helpline

If you live in Northern Ireland, the process that applies to you is different. You should visit nidirect for guidance.

• nidirect - the official government website for Northern Ireland citizens Opens new window