Administration does not end employment contracts on its own. The company remains the employer, and the administrator, acting as its agent, decides who stays, who is made redundant and whether the business is sold. Staff kept on after the first 14 days have their wages and salary for the period after adoption paid ahead of the administrator’s own fees, and on a going concern sale TUPE usually moves them to the buyer, with special insolvency rules on arrears and pay changes.

Does administration end employees’ contracts?

No. Under paragraph 69 of Schedule B1 to the Insolvency Act 1986 the administrator acts as the company’s agent, so the company is still the employer and contracts carry on unless someone ends them. GOV.UK describes three outcomes for staff of an insolvent employer: they may be made redundant, asked to keep working, or transferred to a new employer if the business is sold. The insolvency practitioner must tell employees how their jobs are affected and, where they are dismissed, give them an RP1 fact sheet and a case reference number for claims.

The directors’ position is different and is covered in what happens to directors in administration.

What does it mean when an administrator adopts a contract?

Paragraph 99 of Schedule B1 sets the priority of liabilities the administrator takes on. Debts under contracts the administrator enters into are paid out of the property in the administrator’s control and in priority to the administrator’s own remuneration and expenses. Paragraph 99(5) extends that to liabilities under a contract of employment that the administrator has adopted, with three limits:

  • anything done within 14 days after the administrator’s appointment does not count towards adopting a contract;
  • liabilities arising from anything before adoption are left out; and
  • only wages or salary qualify. Paragraph 99(6) says this includes holiday pay, pay for absence through illness or other good cause, pay in lieu of holiday and occupational pension contributions.

The 14 day window gives the administrator time to decide whether the business can trade and who is needed. Staff who carry on working after that have strong protection for current pay. Other sums, such as statutory redundancy pay, are not wages or salary under paragraph 99(6) and do not get this priority.

How are wages and holiday pay owed from before administration treated?

Arrears built up before the appointment are not adopted liabilities. They fall into two other routes.

Preferential debts

Category 5 of Schedule 6 to the Insolvency Act 1986 makes some employee debts preferential. Paragraph 9 covers remuneration for the four months before the relevant date, up to a prescribed amount, which the Insolvency Service’s technical guidance gives as £800 under the Insolvency Proceedings (Monetary Limits) Order 1986. Paragraph 10 covers accrued holiday remuneration owed to an employee whose employment has ended. Anything above those limits is an ordinary unsecured claim; see proof of debt in insolvency.

The National Insurance Fund

Dismissed employees can claim certain debts from the government. GOV.UK sets the 2026 to 2027 limits: up to 8 weeks of arrears, up to 6 weeks of holiday taken or accrued in the 12 months before the insolvency, statutory notice pay and redundancy pay, each capped at £751 a week (£719 for redundancies before 6 April 2026). Claims for redundancy, wages and holiday must be made within 6 months of dismissal. The full rules are in redundancy pay when an employer is insolvent. GOV.UK also notes that employees who keep working cannot claim from the government for wages, holiday pay, bonuses or commission owed between the date of the insolvency and the date they are dismissed, which is why adoption priority is important to them.

What consultation is needed before redundancies?

Insolvency does not switch off collective consultation. Under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992, an employer proposing to dismiss as redundant 20 or more employees at one establishment within 90 days must consult appropriate representatives. Consultation must start at least 30 days before the first dismissal takes effect, or 45 days where 100 or more are involved, and must cover ways of avoiding the dismissals, reducing the numbers and mitigating the consequences. Where special circumstances make full compliance not reasonably practicable, section 188(7) still requires all reasonably practicable steps.

If the employer fails, a tribunal can make a protective award. Since 6 April 2026 the protected period can be up to 180 days (section 189(4), as amended by the Employment Rights Act 2025). Separately, section 193 requires notice to the Secretary of State at least 30 days (or 45 days for 100 or more) before the first dismissal, and failure is an offence under section 194. GOV.UK confirms that employees of an insolvent employer can bring protective award claims against the Secretary of State and the former employer.

Does TUPE apply when an administrator sells the business?

Usually, yes. Regulation 4 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 moves the contracts of employees assigned to the transferring business to the buyer, along with the seller’s rights, duties and liabilities under them. Regulation 7 makes a dismissal unfair where the sole or principal reason is the transfer, unless an economic, technical or organisational reason entailing changes in the workforce applies.

Regulation 8(7) switches off regulations 4 and 7 only where the seller is in proceedings started with a view to liquidating its assets. Regulation 8(6) covers the other case: insolvency proceedings not aimed at liquidation and supervised by an insolvency practitioner. The government’s TUPE guide says these “relevant insolvency proceedings” mean collective proceedings in which all or part of the business is transferred as a going concern, and do not cover a winding up with no such transfer. GOV.UK puts it simply: TUPE is unlikely to protect staff if the business is closing down, but will normally apply if it is rescued and transferred. A going concern sale out of administration, including a pre pack, is the typical case.

What changes when the seller is insolvent?

Where regulation 8(6) applies, two modifications help the buyer.

  • Arrears stay with the state scheme. Regulation 8(3) to (5) treats transferring employees as dismissed on the transfer date for the statutory redundancy and National Insurance Fund schemes, and those sums do not pass to the buyer. GOV.UK confirms the buyer must pay whatever is left after the National Insurance Fund has paid.
  • Permitted variations. Regulation 9 allows the seller, buyer or insolvency practitioner to agree changes to terms with appropriate representatives (union representatives where a union is recognised) where the reason is the transfer and the aim is to safeguard jobs by ensuring the business survives. Agreements with non union representatives must be in writing and signed, and staff must get the text and guidance before signature. GOV.UK notes that changes cannot breach statutory rights such as the National Minimum Wage.

How does this work in practice?

Illustration only. A company enters administration on 2 November 2026 owing its 12 staff two weeks’ wages. Each earns £900 a week. The administrator keeps everyone working for three weeks and then sells the business as a going concern to a buyer who takes all 12.

  • Wages for the period after the contracts were adopted are paid from the company’s property ahead of the administrator’s fees under paragraph 99.
  • For the two weeks’ arrears of £1,800 per person, the National Insurance Fund pays up to £751 a week, so £1,502. The remaining £298 per person passes to the buyer under TUPE.
  • If the buyer later wants to cut pay to keep the business viable, it must agree a permitted variation with representatives under regulation 9 rather than impose it.

What mistakes come up most often?

  • Assuming TUPE cannot apply because the seller is insolvent.
  • Buyers ignoring the arrears above the National Insurance Fund caps that transfer to them.
  • Skipping collective consultation because of time pressure; the protective award can now reach 180 days’ pay.
  • Employees missing the 6 month time limit for claims. See also statutory redundancy pay.
  • Treating holiday pay as lost; accrued holiday can be preferential and claimable within the caps, as explained in holiday pay accrual.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.