In the event that a winding up petition is served against a company, it is important to consider the rights of the company’s employees. The truth is that if the petition is heard and a winding up order is subsequently made, the company will be wound up and put out of business, with the inevitable consequence that all the employees will be dismissed.
A Winding up Petition Alone Does Not Guarantee Employee Redundancy
The act of a winding up petition being served does not necessarily spell the end for a business. If the winding up petition is dismissed by the judge or the debt owing is repaid, it is possible the business will continue much as it did before and jobs will be saved. The real consequences for the employees begin when a winding up order is made.
What happens to employees during compulsory liquidation?
In a compulsory liquidation the making of the winding-up order itself operates as notice of dismissal, so employment ends then rather than when a liquidator is later appointed.
What an employee is then owed does not all rank the same way, and this is where the position is widely misunderstood. Only part of an employee’s claim is preferential.
- Preferential – arrears of wages and salary for the four months before the liquidation, capped at £800 per employee, and accrued holiday pay, which is not capped. Certain unpaid occupational and state pension scheme contributions are also preferential.
- Unsecured – everything else, including statutory redundancy pay, statutory notice pay, wages above the £800 preferential limit, and any award for unfair dismissal. These rank alongside suppliers and are usually paid little or nothing.
That distinction matters because redundancy pay and notice pay are normally the two largest sums owed, and neither of them is preferential. In practice most employees are paid by the Redundancy Payments Service rather than out of the company’s assets.
- Payments from the company
In the order of payment, preferential claims come after the expenses of the liquidation and after any lender with a fixed charge has been paid out of the asset charged. They come ahead of a lender with a floating charge, which is a better position than employees are often told. Even so, there is frequently not enough money to settle employee claims in full, and unsecured claims such as redundancy and notice pay usually receive very little from the company itself.
- Filing a claim with the Redundancy Payments Service
Where the company cannot pay, employees can claim from the National Insurance Fund through the Redundancy Payments Service, subject to statutory caps. Claims are made online at claim.redundancy-payments.service.gov.uk. You need the case reference number, which begins CN and is given to you by the office-holder, together with your National Insurance number and an email address. Paper RP1 forms are no longer the route. Loss of notice pay is claimed separately, after the notice period has ended.
The Redundancy Payments Service does not pay everything an employee is owed. Each element is capped at a week’s pay, which is itself capped at £751 for dismissals on or after 6 April 2026. Within those limits you can claim for:
- Statutory redundancy pay, if you had at least two years’ continuous service
- Up to eight weeks’ arrears of wages, including bonus, overtime and commission where your contract provides for them
- Up to six weeks’ holiday pay, for holiday accrued in the twelve months before the insolvency
- Statutory notice pay, at one week for each complete year of service up to a maximum of twelve weeks
- Unpaid pension contributions
- A basic award for unfair dismissal, where an employment tribunal has made one
Making a wrongful dismissal claim
TUPE is often mentioned in this context, and usually wrongly. TUPE does not create a right to bring a wrongful dismissal claim. It deals with what happens to employment contracts when a business changes hands, and it treats terminal insolvency proceedings differently from an ordinary transfer. Where the employer is in insolvency proceedings begun with a view to liquidating the assets, which compulsory liquidation is, contracts do not transfer automatically and the usual automatically-unfair-dismissal protection does not apply. In an administration or a business sale the position can be quite different, so the type of procedure matters.
A wrongful dismissal claim is a separate, contractual claim: that you were dismissed without the notice your contract or the statutory minimum required. It exists whether or not TUPE is in play. To bring one you would need to show that:
- They were dismissed without being given adequate notice in accordance with the statutory minimum notice period;
- They were dismissed in breach of contract;
- They have suffered a loss as a result of the dismissal.
Even a successful claim is unlikely to be paid in full by the company. A wrongful dismissal claim is an unsecured debt, so it ranks behind the expenses of the liquidation, secured lenders and preferential claims. For most employees the Redundancy Payments Service, not litigation, is the realistic route to being paid.
Being threatened with a winding up petition?
We can help, but the likelihood of us being able to help you successfully defend your company against a winding up petition very much depends on how quickly we can act after you receive the petition.