When a company can no longer pay its debts and enters a Creditors’ Voluntary Liquidation (CVL), one of the most immediate concerns is the impact on employees.
A CVL is a formal insolvency process used to close down a company that has become insolvent. While it is often the most responsible route for directors to take, it inevitably leads to the end of employment for staff. Fortunately, employees have legal protections and may be entitled to claim money they are owed.
This article explains what happens to staff during a CVL, what they’re entitled to, and how directors can support them through the process.
When Does Redundancy Take Place?
When a company enters into a CVL, it stops trading. From that point, the appointed liquidator — a licensed insolvency practitioner — takes over full control of the business. Directors step back, and the company’s assets are assessed and sold.
For employees, this usually means redundancy takes place immediately, or within a very short period. Employment contracts are terminated, and staff are formally dismissed.
This kind of redundancy isn’t performance-related. It’s a legal outcome of the company entering liquidation. Even if the business has operated for many years, once it’s insolvent and enters CVL, all employment must come to an end.
What Are Employees Entitled To?
If your company’s staff are made redundant through a CVL, they may be able to claim money they’re owed from the Redundancy Payments Service (RPS) — a government-backed scheme that helps employees when their employer can’t afford to pay them directly.
Depending on their situation, eligible employees can claim:
Statutory redundancy pay —Based on age, length of service, and weekly wage (up to a statutory maximum).
Unpaid wages — Up to eight weeks’ worth of unpaid salary.
Accrued holiday pay — For any untaken, earned holiday days.
Notice pay — Payment in lieu of the statutory notice period.
Unpaid pension contributions — If the company failed to make them before the liquidation.
These payments are made directly by the government once the company is officially in liquidation and the liquidator confirms employment details. Most claims are processed within a few weeks.
What About Directors and Shareholders Who Are Also Employees?
In many small companies, directors also work full-time for the business. If you’re a director who has been paid through PAYE and had a written or implied employment contract, you may also qualify for redundancy and other statutory claims.
To be eligible, directors typically must:
- Work at least 16 hours per week for the company
- Be paid through PAYE (not only dividends)
- Carry out real day-to-day duties, not just advisory or shareholder roles
- Be owed money such as wages or holiday pay.
Many directors are unaware they could receive redundancy pay — sometimes worth several thousand pounds. If you meet the criteria, it’s worth discussing this with your insolvency practitioner.
What Should Directors Do to Support Staff?
Although the liquidator formally handles employee dismissals during a CVL, directors still have an important role to play. The way redundancies are communicated and managed can make a real difference to your team.
Here’s how directors can support their staff during this time:
Be clear and honest — Let employees know what’s happening as soon as it’s appropriate. Avoid surprises.
Provide guidance — Direct them to resources, such as gov.uk, where they can begin their redundancy claims.
Stay professional — Maintain a calm, respectful approach. Even in difficult circumstances, your leadership matters.
Keep records — Provide the liquidator with accurate payroll and HR information to speed up staff claims.
Being transparent and organised can help employees feel respected and supported — even if the outcome is out of your hands.
Why Does This Process Matter?
Staff redundancies are one of the most emotional aspects of closing an insolvent company. Many directors feel a strong sense of responsibility toward their team — especially long-serving employees.
That’s why it’s important to follow the correct procedures. A properly managed CVL:
- Ensures employees are treated fairly and in line with employment law
- Reduces the risk of legal claims against the company or directors
- Protects the reputation of everyone involved.
It also gives staff a clear path forward — allowing them to claim what they’re owed without delay.
Supporting Your Staff Through Liquidation
Entering a Creditors’ Voluntary Liquidation is rarely easy — especially when employees are involved. But by understanding the process, acting early, and supporting your team, you can manage this stage of the business closure with integrity.
If your company is facing financial difficulties, professional advice is essential. The sooner you act, the more options you’ll have — both for your business and your employees.
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