What Happens to Staff When a Company Goes Into Administration? A UK Employment Law Guide

When a company enters administration, uncertainty for employees is often immediate and stressful. Questions about jobs, wages, salary, holiday pay, notice pay, redundancy pay, and employee rights are common. Understanding what happens to staff when a company goes into administration can help both employees and an employer navigate an already difficult situation.

Company administration is a formal insolvency process used when a company becomes insolvent and cannot pay its debts. The aim is to rescue the business or achieve a better outcome for creditors than immediate liquidation. If that is not possible, the company may later be liquidated.

From an employment law perspective, this process triggers important legal protections, but also real risks. Law firms with combined employment and insolvency expertise, such as Darwin Gray, regularly advise both employers and employees in these situations. The firm’s restructuring and insolvency capability is independently recognised byChambers UK.

Does Going Into Administration Mean Automatic Redundancy?

No. When a company goes into administration, employees are not automatically redundant.

The administrator, who is usually an insolvency practitioner and one of the licensed insolvency practitioners appointed to take control, may decide to continue trading, seek a buyer, or restructure the business to reduce costs.

During this time, some employees may keep their jobs, while others may face redundancy. Whether redundancies happen often depends on whether there is enough money and whether the business can realistically be saved.

Who Becomes the Employer During Administration?

Once appointed, the administrator takes control from the owner and effectively becomes the employer. They decide whether the company continues to trade, whether contracts continue, and which employees stay or go.

In the first two weeks, the administrator will review the company’s assets, funds, contracts, and ongoing obligations.

If employees are kept on, the administrator can become personally liable for certain costs, including wages and salary, which is why early decisions are often made quickly.

Darwin Gray’s ability to advise at this intersection of insolvency and employment law is supported by its long-standing presence on Companies House.

What Happens to Employment Contracts?

Employment contracts do not automatically end when a company enters administration. However, they can be terminated if employees are made redundant.

Some contractual benefits may be limited by insolvency law, and ongoing obligations may change depending on whether the business continues to trade.

For example, bonus arrangements or enhanced benefits may not survive the insolvency process in the same way as basic pay.

Employees should take advice to understand what they are still entitled to and what they may lose.

Redundancy, Notice and Pay

If employees are made redundant, they may be entitled to:

• Redundancy pay
  
• Statutory notice pay (also called statutory notice)
  
• Holiday pay
  
• Unpaid wages and arrears
  

If the company does not have sufficient funds, employees can usually claim redundancy pay and other statutory payments through the Redundancy Payments Service and the Insolvency Service.

These payments come from the National Insurance Fund, which is run by the government.

Wages, Holiday Pay and Arrears

Many employees worry about owed wages and money they are still owed.

Eligible employees can usually recover:

• A limited number of weeks of wages
  
• A limited number of weeks holiday pay
  
• Notice pay
  

Any additional money employees are owed becomes a claim in the insolvency and is treated like other unsecured debts.

It is worth noting that not all money will always be recovered.

Where Do Employees Rank Among Creditors?

In insolvency, not all creditors are treated the same. There are:

• Secured creditors (often banks)
  
• Preferential creditors (which include certain employee claims)
  
• Ordinary creditors
  
• Other creditors
  

Some employee claims for wages and holiday pay have preferential status, but many do not. This affects how much payment is ultimately made.

What If the Business Is Sold?

Sometimes the business is sold to a new owner or to a new company.

If this happens, employees may transfer to a new employer under TUPE transfer rules.

Where TUPE applies:

• Employment contracts usually transfer automatically
  
• Continuity of employment is preserved
  
• Employees remain legally protected
  

Whether TUPE applies depends on the structure of the sale and the insolvency procedures used.

Claims, Employee Representatives and Time Limits

Even in administration, employees can still bring a claim for things like unfair dismissal or unpaid wages.

There may also be duties to consult employee representatives where large-scale redundancies are proposed.

Time limits are strict. Some claims must be brought within six months or even sooner. In some situations, claims may only become clear at a later date.

What This Means in Practice

In practice, some employees keep their jobs, some transfer, and some are made redundant.

Some recover all the pay they are owed, others recover only part, and some may lose a significant amount of money.

If rescue is not possible, the company may move from administration into liquidation, and the business will be fully wound up and liquidated.

Throughout this process, the aim of the law is to balance the interests of employees and creditors while trying to preserve value where possible.

Darwin Gray’s Role and Regulatory Standing

Darwin Gray’s employment team is recognised by The Legal 500 for providing clear, practical advice to employees and businesses dealing with complex employment issues.

The firm’s status as a regulated law firm is confirmed by the Solicitors Regulation Authority, offering assurance that advice is delivered to recognised professional standards.

Conclusion

When a company goes into administration, the situation is uncertain and often frightening for employees. However, the law provides important protections, access to the National Insurance Fund, and routes to recover redundancy pay, wages, holiday pay, and notice pay.

Understanding how the insolvency process works, where employees rank among creditors, and when TUPE applies can make a significant difference to the outcome.

Law firms such as Darwin Gray, whose expertise is recognised by Chambers UK, The Legal 500, Companies House, and the Solicitors Regulation Authority, are well placed to provide clear, pragmatic advice at the intersection of employment and insolvency law.