Who Pays Redundancy Pay If There Is No Money in the Company?

When a company has no money to pay redundancy, employees can claim statutory redundancy pay from the government's Redundancy Payments Service, which is part of the Insolvency Service. Payments are made from the National Insurance Fund and cover redundancy pay, unpaid wages, holiday pay, and notice pay up to statutory limits.

How Redundancy Works When Your Company Has No Money

You might assume that if the company is broke, nobody gets paid. That is not how it works.

When an employer is insolvent and unable to make redundancy payments, the government steps in through the Redundancy Payments Service. The money does not come from your company. It comes from the National Insurance Fund.

This means staff get their statutory entitlements even when the business has nothing left.

The system exists because the government recognises that employees should not be left penniless when a company fails. You and your staff have contributed to National Insurance throughout your employment. This fund protects you when things go wrong.

What Is the Redundancy Payments Service?

The Redundancy Payments Service is a government service you use to claim money if your employer owes you redundancy payment or other money like wages, holiday and commission when your employer is unable to pay because they're insolvent.

The service processes claims quickly. In the last year, the Insolvency Service efficiently processed 69,237 redundancy payments.

You apply online. The insolvency practitioner handling your company's liquidation will give you the reference number you need to make your claim.

The government pays you directly. Your former company does not handle any of this.

Can Directors Claim Redundancy Pay?

Yes. Many directors do not realise this.

Directors can claim redundancy pay if they are also employees of the company with a contract of employment that outlines their duties and responsibilities. Being a director alone is not enough. You must also be an employee.

You qualify if:

• You have a formal employment contract (written, oral, or implied).
• You have worked for at least two continuous years.
• Your role as a director was active rather than purely office holding.
• You were paid via PAYE.

Common misconceptions:

"I own the company so I cannot claim" – Wrong. Ownership does not disqualify you.

"I am the only director so it does not count" – Wrong. Even as the sole director, you may still be eligible if you meet the criteria of being an employee.

"Directors are not employees" – Wrong. A director who is an office holder can also be an employee and be eligible for payment.

The key issue is whether you worked as an employee. Your contract should detail the terms of your employment including salary, duties, and working hours.

Directors must be able to prove they had more than just an advisory or non-executive role in the running of the business. If you turned up to work, did the day-to-day tasks, and drew a salary through PAYE, you were an employee.

Who Is Eligible and How Much Can You Claim?

Basic eligibility rules:

• IF you have worked for 2+ years as an employee → THEN you can claim statutory redundancy pay.
• IF the company is insolvent → THEN claims go through the Redundancy Payments Service.
• IF the company is solvent → THEN the company must pay redundancy directly.

Payment amounts:

If you were made redundant on or after 6 April 2025, your weekly pay is capped at £719. The maximum total of statutory redundancy payments you can get is £21,570.

Your redundancy pay depends on your age and length of service:

• Under 22: Half a week's pay for each full year.
• Age 22 to 40: One week's pay for each full year.
• Age 41 and over: One and a half weeks' pay for each full year.

Service is capped at 20 years maximum.

Other payments you can claim:

• Redundancy pay (if employed for at least two years).
• Unpaid wages (including overtime, bonuses, or commission).
• Holiday pay (for any annual leave owed but not paid).
• Statutory notice pay (if you worked for at least one month).

For redundancy pay, arrears of pay and notice pay, if your number of hours worked per week varied, an average is taken across 12 weeks. For holiday pay, if your number of hours worked per week varied, an average is taken over 52 weeks.

Maximum amounts:

• Unpaid wages: up to 8 weeks.
• Holiday pay: up to 6 weeks.
• Notice pay: up to 12 weeks.

If you are owed more than the maximum the government can pay, you can register as a creditor in the insolvency for any outstanding money you're owed.

What Happens During Liquidation?

When your company enters liquidation, the process moves quickly.

Typical timeline:

1. Company enters formal insolvency (liquidation or administration).
2. An insolvency practitioner is appointed.
3. Staff are made redundant.
4. The insolvency practitioner issues case reference numbers.
5. Employees submit claims online.
6. The government processes claims.
7. Payments are made directly to claimants.

Claims for redundancy payments should usually be made within six months of the date of liquidation, although this can be extended to 12 months in some cases.

You can only apply after the official date of insolvency, which will be confirmed by the insolvency practitioner managing the case.

The insolvency practitioner will provide you with the forms and guidance. You might receive multiple payments as each claim type is processed.

When you're going through company liquidation, your insolvency practitioner will explain how redundancy claims fit into the wider process and ensure you receive everything you're entitled to claim.

What You Should Do Next

Step 1: Speak to a licensed insolvency practitioner

Get clear advice on whether liquidation is the right option. They will explain the process and your entitlements.

Step 2: Gather your employment records

Collect your employment contract, payslips, P60s, and any documents showing your role and salary. Directors applying to the Redundancy Payments Service for monies owed will need to provide evidence to support their claim that they were an employee, including employment details, dates employed, and how much they were paid.

Step 3: Start formal insolvency proceedings

Your company must be in a formal insolvent liquidation process such as a Creditors' Voluntary Liquidation before you can claim redundancy pay. You cannot claim while the company is still trading.

Step 4: Work with the insolvency practitioner

They will provide your case reference number and help you complete the claim forms correctly.

Step 5: Submit your claims online

Use the Redundancy Payments Service website. You will need separate claims for redundancy pay and notice pay.

Step 6: Wait for payment

The Insolvency Service will contact you if further information is needed. It is recommended to wait at least six weeks before checking on progress.

Step 7: Register as a creditor for any excess

If you are owed more than the statutory caps, register your additional claim with the insolvency practitioner.

Real-World Scenarios

Scenario 1: Small retail business

Sarah runs a clothing shop. She has three staff and has been trading for six years. The business cannot pay its debts.

Sarah closes the shop and appoints a liquidator. All four people (including Sarah as director) are made redundant. Each person worked for more than two years and was paid via PAYE.

All four submit claims to the Redundancy Payments Service. Sarah receives £8,640 in redundancy pay based on her age and service. Her staff receive payments ranging from £4,000 to £7,000. Nobody waited for the company to somehow find money it did not have.

Scenario 2: Limited company contractor

James operates as a one-person limited company doing IT contracting. After five years, work dries up. The company owes £15,000 to HMRC and suppliers.

James wonders if he can claim redundancy as the only employee. He can. He has an employment contract, took a salary through PAYE, and worked for over two years.

He liquidates the company and claims redundancy pay of £10,800 plus unpaid wages and holiday pay. The money comes from the government, not from his insolvent company.

Scenario 3: Family business with director shareholders

Two brothers run a building firm as directors and equal shareholders. They have five employees. The company becomes insolvent with £80,000 in debts.

Both directors qualify for redundancy because they have employment contracts and work full-time in the business. They are not excluded simply because they own shares.

All seven people claim redundancy. The employees receive their statutory payments. The two directors each receive around £12,000 based on their service and age. Everyone is paid by the government.

How We Can Help

Going through company closure is difficult. You worry about your staff, your creditors, and your own future.

We understand. We speak to directors in your position every day.

The good news is that redundancy payments provide a financial cushion. Your staff will not be left without support. If you qualify, neither will you.

The Easy Liquidation team will:

• Explain whether you and your staff can claim redundancy.
• Guide you through the liquidation process.
• Provide the correct forms and reference numbers.
• Ensure claims are submitted properly.
• Answer questions at every stage.

The process is straightforward when handled correctly. Most claims are paid within weeks.

You do not need to worry about finding money the company does not have. The government system exists for exactly this situation.

If you need help understanding your options, speak to a licensed insolvency practitioner. The initial conversation is free and confidential. You will get honest answers without pressure.

Frequently Asked Questions

Can I claim redundancy if the company is still trading?

No. Claims cannot be made during a Members' Voluntary Liquidation as this process is for solvent companies. The company must be insolvent and in a formal insolvency process before claims can be submitted.

What if I do not have a written employment contract?

While not mandatory, having a written contract significantly strengthens your case. If you lack a formal agreement, you must provide other evidence of an employment relationship such as consistent work patterns and responsibilities. Payslips showing PAYE, P60s, and evidence of your working role all help prove employee status.

Will claiming redundancy affect my credit rating?

No. Receiving redundancy payments does not affect your personal credit rating. You are claiming a statutory entitlement, not declaring personal insolvency.

How long does it take to receive payment?

Most claims are processed within 6 to 8 weeks of submission. You might receive multiple payments as each claim type is processed. The Insolvency Service will write to you each time they make a payment.

What happens if my claim is rejected?

If your claim is rejected, you can take your employer to an employment tribunal to show you were redundant. You must start the process of applying to the tribunal within 6 months minus 1 day from when your employment ended. Your insolvency practitioner can guide you through this process.