What happens to employees when a company enters administration?
You keep your job — for now. Under paragraph 99, Schedule B1 of the Insolvency Act 1986, the administrator has 14 days to decide whether to adopt each employment contract. If the business is sold as a going concern, TUPE 2006 transfers you to the buyer. If it isn't, you can claim statutory redundancy, notice, wages and holiday pay from the Redundancy Payments Service (part of the Insolvency Service) — capped at £719/week (from 6 April 2024). Author: Chris at Sell Ltd.
The first 30 days — what actually happens
Administrator files notice at court; a legal moratorium starts. Employment continues. Payroll runs as normal if cash allows.
Administrator reviews cash, orderbook and staffing. If trading is unviable, mass redundancies may issue in the first 48 hours to preserve cash for creditors.
The administrator decides whether to 'adopt' each contract. Wages paid for work in this window rank as an administration expense (super-priority).
If a going-concern sale is realistic, the business is marketed. TUPE 2006 means employees transfer to any buyer with existing terms.
Adopted employees continue on protected terms. Any dismissals from this point onward create adopted-liability claims — a strong deterrent against keeping staff on speculatively.
What you can claim — the money map
| Entitlement | Statutory basis | Cap | Paid by |
|---|---|---|---|
| Statutory redundancy | ERA 1996, Part XI | £719/week × age-weighted service (max 20 years) | RPS / National Insurance Fund |
| Unpaid wages | ERA 1996, s.184 | Up to 8 weeks at £719/week | RPS |
| Holiday pay | ERA 1996, s.184 | Up to 6 weeks at £719/week (accrued in last 12m) | RPS |
| Notice pay | ERA 1996, s.86 | 1 week per year (max 12) at £719/week | RPS |
| Preferential wage arrears | IA 1986, Sch 6 | £800 per employee | Estate (asset realisations) |
| Unpaid pension | IA 1986, Sch 6 | Preferential up to £5,000 | Estate |
| Protective award | TULRCA 1992, s.189 | Up to 90 days' pay if s.188 consultation breached | RPS (capped) + estate |
Weekly cap source: The Employment Rights (Increase of Limits) Order 2024, effective 6 April 2024.
Worked example — Sarah, 8 years' service, £42,000
Sarah is 41, earns £42,000 (£807/week gross), and has worked for the company for eight years when it enters administration. The business closes on day 3.
- • Redundancy: 8 × 1 week (mid-tier) = 8 × £719 cap = £5,752 from RPS.
- • Notice: 8 weeks × £719 cap = £5,752 from RPS.
- • Holiday: 12 days accrued × £719/5 = £1,726 from RPS.
- • Wages arrears (2 weeks): 2 × £719 = £1,438 from RPS; plus £800 preferential claim in the estate.
- • Uncapped balance (real pay above the cap): unsecured claim in the estate, likely pennies in the pound.
Total RPS payout: ~£14,668. Timeframe: 3–6 weeks after online claim once the administrator issues a case number.
TUPE on a going-concern sale — the buyer inherits you
If the administrator sells the business (not just assets) as a going concern — including a pre-pack — the Transfer of Undertakings (Protection of Employment) Regulations 2006 apply. All contracts of employment, continuous service, accrued holiday and unfair-dismissal protection transfer to the buyer on completion. The buyer can lawfully vary terms only for an economic, technical or organisational (ETO) reason involving changes in the workforce; renegotiation on price grounds alone is unlawful under regulation 4(4).
Read the sibling guide on pre-pack administration for how buyers assess a TUPE-transferring workforce and what a SIP 16 statement should disclose about staff numbers, terms and post-completion plans.
Red flags to watch for
You're asked to sign a new contract with the buyer that reduces pay or holiday — TUPE reg 4(4) usually makes this void.
The company skipped section 188 consultation but wasn't in a rush: you may be entitled to a protective award.
Wages 'stopped' the week before appointment — this can be a preference under s.239 IA 1986. Flag it to the administrator.
Directors made themselves employees days before appointment — the RPS may refuse the claim as a sham.
The administrator asks you to work 'to help wind things down' without confirmation of adoption — get it in writing.
Your employer paid holiday allowance as cash rather than accruing it — the arrears may not be a Working Time Regulations claim.
Related administration guides
Frequently asked questions
Do I still have a job the day the administrator is appointed?
Almost always yes — for the first 14 days. The administrator inherits contracts of employment on appointment. Under paragraph 99 of Schedule B1 of the Insolvency Act 1986, they have 14 days to decide whether to 'adopt' each contract. Employees who continue working during that window are still owed wages, and after 14 days the adopted wages rank as an administration expense.
Will TUPE apply if the business is sold?
Usually yes. If the administrator sells the business as a going concern — including most pre-packs — TUPE 2006 transfers contracts, continuity of service and accrued rights (except most occupational pension benefits) to the buyer. TUPE does not transfer when a liquidator, not an administrator, sells the assets after a winding-up begins.
What can I claim from the Redundancy Payments Service?
The Redundancy Payments Service (RPS) — part of the Insolvency Service — pays statutory redundancy, up to eight weeks' unpaid wages (capped at the statutory weekly limit), holiday pay accrued in the last 12 months (up to six weeks), notice pay, and unpaid pension contributions. Payments come from the National Insurance Fund and are subject to the current statutory weekly cap (£719 from 6 April 2024).
Am I a preferential creditor?
Yes, for a defined slice. Employee arrears of wages (capped at £800), unpaid holiday pay and pension contributions rank as first-tier preferential debts under Schedule 6 of the Insolvency Act 1986. Anything above the cap is a second-tier preferential claim (behind HMRC secondary preferentials since December 2020) or, ultimately, an unsecured claim.
How fast will I hear about redundancy?
Usually within 14 days of appointment. Administrators make the adoption decision inside that statutory window. If continued trading is not viable, dismissals are typically issued in the first 48 hours; if a going-concern sale is in play, staff are kept employed until the sale completes, then TUPE-transferred to the buyer.
Do I need to consult before mass redundancies?
The company must, under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992. In practice administrators often miss the 30- or 45-day windows because the company has run out of cash — that triggers a protective award for up to 90 days' pay per affected employee, itself claimable from the RPS up to the statutory cap.
What happens to my pension?
Contributions unpaid at appointment are preferential up to £5,000 under Schedule 6. Defined-benefit schemes typically enter Pension Protection Fund (PPF) assessment; the PPF pays a percentage of the accrued pension (100% for pensioners, 90% for members below normal pension age, subject to caps). Defined-contribution pots are held by trustees and are not company assets.
Can the administrator change my terms?
Only with agreement or through a formal variation. If the administrator wants to protect cash, they can propose reduced hours or a pay cut for a defined period; employees can accept, reject, or claim constructive dismissal. Unilateral variation risks a claim for breach of contract or unlawful deductions.
Are directors treated like other employees?
It depends on whether they have a genuine service contract. A director-employee with a proper contract, real duties and PAYE history can claim RPS payments on the same basis as any other employee. HMRC and the RPS look through 'shadow' arrangements set up close to insolvency.
How long does it take to be paid by the RPS?
Statutory redundancy and notice pay usually arrive within three to six weeks of the online claim, provided the administrator has issued a case reference (the 'CN' number). Complex cases — disputed service, pension top-ups, protective awards — can take three months or longer.
Chris at Sell Ltd can help buyers of distressed businesses understand the TUPE workforce they're inheriting — and helps directors plan communications the right way before appointment.