Redundancy Claims Following Company Insolvency or a Sole Trader’s Bankruptcy
Practical guidance for directors and employees claiming redundancy and other employment payments after their employer becomes formally insolvent.
When an employer becomes insolvent, employees may lose their jobs while still being owed wages, holiday pay, notice pay and redundancy pay.
This does not only affect employees of limited companies. Where a sole trader is made bankrupt, eligible employees of that sole trader may also be able to claim from the National Insurance Fund.
Company directors may be eligible too, provided they can show that they were genuinely employed by the company as well as holding office as a director.
At Navigate Business Recovery, we help directors and employees understand what may be claimed, identify the evidence required and respond where a claim has been questioned, reduced or rejected.
What Is a Redundancy Claim?
Where a formally insolvent employer cannot pay amounts owed to its employees, certain statutory payments may be claimed through the Insolvency Service’s Redundancy Payments Service.
Depending on eligibility and the circumstances, an employee may be able to claim statutory redundancy pay, unpaid wages, accrued holiday pay and statutory notice pay.
These claims are subject to legal limits and eligibility requirements. The Redundancy Payments Service may not pay every amount due under the employment contract. Any balance above the statutory limits may need to be claimed separately in the employer’s insolvency.
Employees of a Bankrupt Sole Trader
The redundancy payment scheme is not limited to employees of insolvent companies.
A sole trader is personally the employer. If that sole trader is made bankrupt and the business can no longer pay its employees, eligible employees may be able to claim from the National Insurance Fund.
This may include statutory redundancy pay, unpaid wages, accrued holiday pay and statutory notice pay, subject to the usual conditions and limits.
The bankrupt sole trader cannot normally claim redundancy pay for losing their own business because a self-employed person is not their own employee. However, people genuinely employed by the sole trader may still qualify, including family members or business associates where a real employment relationship existed.
The Official Receiver dealing with the bankruptcy should provide eligible employees with the insolvency case reference needed to make their claims. Bankruptcy is expressly recognised as a form of employer insolvency for the purposes of the government scheme.
Can a Company Director Claim?
A company director can potentially claim redundancy and other statutory employment payments, but only if they were also an employee of the company.
Being registered as a director does not automatically create an entitlement. Equally, being a director does not prevent a genuine employee claim.
A director is an office holder. Employment is a separate legal relationship. The Insolvency Service will consider whether an express or implied contract of employment existed and whether the practical working arrangements were consistent with employment.
The director may need to show that they performed identifiable duties, worked regular hours, received salary through payroll and was required personally to carry out work for the company.
The decision is based on the overall evidence rather than any single document.
Director, Shareholder and Employee
A director may hold several different positions within the same company.
They may be a shareholder because they own shares, an office holder because they are appointed as a director and an employee because they work under a contract of employment.
These roles should not be confused.
Dividends are normally paid because of share ownership. A director’s fee may be paid for holding office. Salary is paid for work carried out under an employment relationship.
Where most money was taken as dividends, drawings or loan repayments, the Insolvency Service may look closely at whether genuine employment and salary arrangements existed.
Evidence Supporting a Director’s Claim
Directors are often asked to provide more evidence than other employees because they may have controlled the company’s payroll, records and employment arrangements.
Relevant evidence may include a written employment contract, payslips, payroll records, P60s, bank statements showing regular salary payments and a description of the work performed.
The Insolvency Service may also ask about working hours, holiday entitlement, who decided the director’s remuneration, whether the director worked elsewhere and whether another person could have carried out the role.
A written contract can assist, but it is not conclusive. A contract prepared shortly before liquidation will carry little weight if it does not reflect what happened in practice.
Likewise, the absence of a detailed written contract does not necessarily defeat a claim where the wider evidence supports an implied contract of employment.
Documents should not be created or altered after the company has failed in an attempt to strengthen the claim.
Statutory Redundancy Pay
An employee will generally need at least two years of continuous employment to qualify for statutory redundancy pay.
The calculation depends on the employee’s age, completed years of service and weekly pay. A maximum of 20 years’ service can be included.
For dismissals on or after 6 April 2026, the weekly pay used in the calculation is capped at £751. The maximum statutory redundancy payment is therefore currently £22,530. These figures are reviewed periodically and the relevant limit depends on the dismissal date.
An employment contract may provide for an enhanced redundancy payment, but the government scheme will normally cover only the statutory entitlement. Any additional contractual balance may need to be claimed in the insolvency.
Unpaid Wages and Other Earnings
An eligible employee may claim up to eight weeks of unpaid wages and certain other contractual earnings, subject to the statutory weekly cap.
This can include salary, overtime, commission and bonuses where those amounts were properly due under the employment contract.
Payments representing wages and earnings are subject to Income Tax and National Insurance deductions. Any amount above the statutory scheme limit may need to be claimed from the insolvent estate.
Holiday Pay
A claim may include holiday that had accrued but had not been taken and holiday that had been taken but not paid.
The scheme generally covers holiday arising during the 12 months before the employer became insolvent, subject to a maximum of six weeks and the statutory weekly cap.
Where formal holiday records were not kept, a director or employee may need to explain the holiday year, contractual entitlement and how much leave had been taken.
Statutory Notice Pay
Employees are entitled to a statutory minimum notice period based on length of service, up to a maximum of 12 weeks.
A claim may be made where the employee received no notice, worked only part of the notice period or worked during the notice period without being paid.
Statutory notice pay is dealt with separately from the principal redundancy application. The employee must first apply for redundancy and other amounts owed. The Insolvency Service will then provide the reference required to apply for notice pay after the statutory notice period has ended.
Earnings and certain benefits received, or which could reasonably have been claimed, during the notice period may reduce the payment.
When Can a Claim Be Made?
A claim can normally be made once the employee has been dismissed and the employer has entered a recognised formal insolvency process.
The insolvency practitioner or Official Receiver will provide a case reference beginning with “CN”. The employee cannot complete the online claim without that reference.
An application for statutory redundancy pay should normally be made within six months of dismissal.
A business merely stopping trading does not necessarily create an immediate right to claim. The employer will ordinarily need to have entered a qualifying insolvency process or satisfy another statutory route.
Strike off or dissolution alone is not necessarily the same as formal insolvency.
What Happens if the Business Is Sold?
Where an insolvent business is sold, employees may transfer to the purchaser rather than being made redundant.
The outcome will depend on the type of insolvency process, the timing of the transfer and the application of the Transfer of Undertakings regulations.
An employee who transfers to a new employer may preserve their continuity of employment and may not have an immediate redundancy claim.
Where employees are dismissed before or during a transfer, employment law advice may be needed to establish whether redundancy, transfer or other claims arise.
Reasons a Director’s Claim May Be Questioned
A director’s claim may be delayed, reduced or rejected where the Insolvency Service is not satisfied that a genuine employment relationship existed.
Questions may arise where salary was not paid regularly, most remuneration was taken as dividends, payroll records are inconsistent or the claimed contract does not match the way the business operated.
The claim may also be affected where the director had already stopped working, did not have sufficient continuous employment or cannot support the amounts claimed.
A rejected claim does not necessarily mean that the director acted improperly. It may simply mean that the Insolvency Service requires further evidence or has reached a different view about employment status.
Challenging a Rejected or Reduced Claim
The decision should be reviewed carefully to identify the specific reason why the claim was rejected or reduced.
It may be possible to provide additional documents, correct inaccurate information or explain the practical employment arrangements more fully.
Where the disagreement remains, the individual may be able to bring a claim before the Employment Tribunal. Government guidance confirms that a claimant who disagrees with a rejection can pursue a Tribunal claim against the Secretary of State and the former employer.
Tribunal deadlines can be short, so legal advice should be obtained promptly.
Money Owed to the Employer
The application process may ask whether the employee owes money to the insolvent employer.
This can be particularly relevant to directors with an overdrawn director’s loan account.
A redundancy claim does not automatically cancel money owed by a director to the company. The liquidator may continue to pursue an overdrawn loan account as a company asset.
Any possible set off will depend on the nature of the sums owed and the applicable legal rules. The redundancy entitlement and the director’s liability to the company should therefore be reviewed separately.
How Navigate Business Recovery Can Help
We help company directors and employees understand the redundancy claims process following company insolvency. We can also assist employees whose sole trader employer has been made bankrupt.
For directors, we can review whether the available evidence supports a genuine employment relationship and help organise employment contracts, payroll information, bank records and explanations of the director’s role.
For other employees, we can help identify the types of payments that may be claimed and the records needed to support the application.
We can also assist where the Redundancy Payments Service has asked for further information, questioned employment status or reduced or rejected a claim.
Navigate Business Recovery does not determine claims and cannot guarantee that an application will be accepted. Where specialist employment advice or Employment Tribunal representation is required, we can refer the individual to an appropriately qualified solicitor or barrister and help prepare the relevant information.
Where a company or sole trader has not yet entered a formal insolvency process, we can provide practical guidance and refer the matter to a licensed insolvency practitioner where a formal appointment is required.
Why Early Preparation Matters
Claims are more likely to be delayed where payroll information is incomplete, company and personal records are mixed together or the evidence does not clearly explain the working relationship.
Preparing the information early can reveal gaps or inconsistencies before the application is submitted.
The claim must remain accurate and based on the true employment arrangements. It should not rely on documents created after the employer became insolvent.
Next Steps
If you are a company director or employee seeking redundancy pay, unpaid wages, holiday pay or statutory notice pay following an employer’s insolvency, you can book a meeting with Vee to discuss the potential claim and the evidence required.
ICO reg: ZA292643 | 
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