Making staff redundant when closing a company means following a fair, legally required process: consulting employees properly, giving correct notice, and confirming what they are owed before the company is dissolved or a liquidator is appointed. Skipping steps can lead to tribunal claims even when a business has run out of money. This guide sets out the process a director should follow, and where a licensed insolvency practitioner takes over.
Redundancy during closure is not automatic or informal. The same statutory rules that apply to a solvent business apply here, and getting them wrong adds legal risk on top of financial pressure.
When redundancies happen during a company closure
Redundancies usually happen at one of two points. Sometimes a director makes staff redundant before formally closing the company, to reduce costs while exploring options. Other times, redundancy happens as part of the closure itself, once a decision has been made to cease trading through liquidation.
Either way, the reason must be genuine redundancy: the role, or the need for the work, has ended because the business is closing. This is different from dismissal for conduct or performance, and it carries its own consultation and payment rules.
Your consultation duties (and the collective redundancy thresholds)
UK law requires collective consultation when a company proposes to make 20 or more employees redundant at one establishment within a 90-day period. This is set out in the Trade Union and Labour Relations (Consolidation) Act 1992, and explained in gov.uk's guidance on redundancy consultations.
- 20 to 99 redundancies: consultation must start at least 30 days before the first dismissal takes effect.
- 100 or more redundancies: consultation must start at least 45 days before the first dismissal takes effect.
- Fewer than 20 redundancies: no statutory collective consultation period applies, but individual consultation is still expected as part of a fair process.
Collective consultation involves informing and consulting appropriate representatives, such as a recognised trade union or elected employee representatives, about the reasons for redundancy, numbers involved, and the selection method. A form HR1 must also be sent to the Secretary of State before collective consultation starts.
Making staff redundant when closing a company: the process step by step
A fair process for making staff redundant when closing a company generally follows these steps:
- Identify the business reason for redundancy and confirm which roles are affected.
- Consult individually with each affected employee, explaining the situation and possible timing.
- Run collective consultation if the 20-employee threshold is met, within the correct time limits.
- Consider alternatives, such as redeployment, where the business structure allows it.
- Confirm redundancy in writing, including notice period, last working day, and payments due.
- Calculate and record statutory redundancy pay, notice pay, holiday pay, and any arrears of wages.
Where the company is closing entirely rather than restructuring, selection criteria are less contentious because every role in scope typically ends. Consultation is still required so employees understand what is happening and can raise questions.
Notice periods and what they mean when there's no cash
Employees are entitled to statutory minimum notice, or their contractual notice if longer. Statutory minimum notice is one week for each complete year of service, up to a maximum of 12 weeks, with a minimum of one week after one month's service.
A common concern for directors is what happens when there is not enough cash to pay notice or wages in full. The obligation to give notice does not disappear because funds are short, but if the company cannot pay, this becomes part of what the employee is owed as an unsecured claim, later assessed alongside other debts. Our guide on what employees are owed when a company closes sets out how these amounts are worked out and prioritised.
How a liquidator handles redundancies once appointed
Once a company enters liquidation under the Insolvency Act 1986, an insolvency practitioner acting as liquidator normally takes responsibility for confirming redundancies and issuing the paperwork employees need to claim their entitlements. Notice of the liquidator's appointment is published in The Gazette, the official public record. In many liquidations, employees are made redundant on or shortly after the liquidator's appointment.
The liquidator does not need to run the same lengthy process a solvent employer might, but collective consultation obligations still technically apply if the 20-employee threshold is met, and a failure to consult can still result in a claim against the insolvent estate. The liquidator will typically confirm dismissal dates, issue redundancy notices, and help employees complete claims to the Redundancy Payments Service.
Where the RPS covers payments you can't make
When a company cannot pay redundancy, notice, or certain other employee debts, the government's Redundancy Payments Service (RPS) can step in. Employees can claim redundancy money when an employer is insolvent directly from the National Insurance Fund, covering statutory redundancy pay, unpaid wages, holiday pay, and notice pay, subject to statutory caps.
The company (or its liquidator) remains responsible for confirming eligibility and figures, but the RPS payment route means employees are not left waiting on company funds that no longer exist. Our article on redundancy pay when a company is liquidated explains how RPS claims work in more detail, including timeframes and what is and is not covered.
Getting it wrong: tribunal and protective award risks
Failing to consult properly, or failing to consult at all where the collective threshold applies, can lead to an employment tribunal claim. Tribunals can award a protective award of up to 90 days' pay per affected employee where collective consultation has not happened correctly.
Individual unfair dismissal claims are also possible if the redundancy process was not genuine or was handled unfairly, though eligibility usually depends on length of service. These risks do not disappear because a company is insolvent; they simply become claims made against the insolvent estate, which is one reason a properly managed process matters even during closure.
Frequently asked questions
Do I still have to consult if I'm insolvent?
Yes. Insolvency does not remove the legal duty to consult employees about redundancy. Individual consultation is expected in all cases, and collective consultation rules still apply once the 20-employee threshold is met.
Who signs it off if a liquidator is appointed?
Once a liquidator is appointed, they take over responsibility for confirming redundancies, issuing notices, and supporting employees' claims, rather than the director acting alone.
How much statutory redundancy pay is an employee entitled to?
It depends on age, weekly pay (subject to a statutory cap), and length of service, up to a maximum of 20 years' service. The exact weekly cap is reviewed each year, so current figures should always be checked before calculating amounts.
Can employees claim if the company has no money at all?
Yes. Where a company cannot pay, eligible employees can claim statutory redundancy pay, notice pay, holiday pay, and certain wage arrears from the Redundancy Payments Service via the National Insurance Fund.
What happens if I don't run collective consultation when I should?
A tribunal can make a protective award of up to 90 days' pay per employee affected, on top of other redundancy entitlements, if collective consultation duties were not met.
Making staff redundant when closing a company is rarely simple, but a fair, well-documented process protects both employees and the director overseeing the closure.
This article is general information, not legal, financial or insolvency advice. Every closure is different, and a director should speak to a regulated specialist about their own circumstances.
If you're planning redundancies as part of closing a company, Harbourfirst can introduce you to a regulated insolvency practitioner or solicitor to talk it through — start an enquiry.