Insolvency is often discussed in numbers; cashflow, liabilities, creditor rankings. However, when a business reaches this critical point, the impact stretches far beyond the balance sheet.
Employees and suppliers are often the first to feel the ripple effects, facing uncertainty when clarity matters most.
Understanding what happens next can help business leaders respond with professionalism, care, and credibility – and make a difficult situation more manageable.
What insolvency means for employees
The impact on employees depends on the process the company enters and if it can continue to trade.
If the company goes into administration, employees may continue working while a buyer is sought or a restructure is planned. The aim is to protect value, which often includes retaining the workforce, at least in the short term.
A company being placed into liquidation usually means trading stops and employment ends. In either case, employees are protected by statutory rights.
These may include:
Redundancy pay (for employees with two or more years’ service)
Unpaid wages
Holiday pay
Notice pay
If the company can’t meet these payments, employees can apply through the Government’s Redundancy Payments Service.
Clear, timely and respectful communication is vital. People will understandably have concerns about their future. Even if directors don’t have all the answers, being honest and empathetic can make a real difference during a difficult time.
The position of suppliers
Suppliers are classed as creditors in insolvency. Once the company is facing insolvency, directors must be cautious; paying one supplier ahead of others may be treated as a ‘preference payment’, which can have serious legal consequences.
Any unpaid invoices should be submitted to the appointed insolvency practitioner, who’ll assess claims and distribute funds (if available) according to legal priorities.
In some cases, key suppliers may be needed to keep the business going during the process. If so, new trading terms can sometimes be agreed. However, debts built up before the insolvency are unlikely to be repaid unless there are enough funds for all creditors.
Managing difficult conversations
Talking to employees and suppliers during insolvency isn’t easy, but doing so with honesty, respect, and a clear understanding of the facts can help the conversation and maintain trust.
You don’t have to go through this alone. Taking advice early can help you protect your responsibilities, avoid common pitfalls, and support those affected with confidence and care.
Need help?
Facing financial pressure can be overwhelming, especially when insolvency could be on the horizon. Our Insolvency and Recovery team provides confidential, practical advice to help directors understand their options and act early – supporting with clarity, care, and a clear path forward.
Get in touch enquiry@larking-gowen.co.uk if you would like to speak with our team.
We also welcome conversations with independent accountants who might not have the expertise in-house to support or advise their clients facing insolvency.
