Unpaid Holiday Pay When A Company Goes into Liquidation

Hasib Howlader

Summary

• Holiday pay is a statutory right for most workers, including zero‑hours and agency staff, entitling them to at least 5.6 weeks’ paid annual leave per year on a pro‑rata basis.
• When an insolvent company goes into liquidation, employees become creditors and unpaid holiday pay is treated as a preferential debt, ranking ahead of most unsecured creditors.
• Staff can claim up to six weeks’ unpaid holiday pay from the government’s Redundancy Payments Service (RPS), for the previous 12 months if the company cannot pay.

What is holiday pay?

Holiday pay is the legal right for employees to receive their normal earnings while taking their allowed time off from work.

Almost all employees, zero-hours and agency workers qualify, except for the self-employed.

Most staff who work a 5-day week get at least 28 days of paid annual leave per year, which is 5.6 weeks. This is pro-rata, so employees working a 3-day week must have at least 16.8 days of paid annual leave.

Employers do not have to give bank or public holidays as paid leave, they can choose to include them as part of a worker’s statutory annual leave, as per government guidance on holiday entitlement rights.

For workers in Great Britain to recover any backdated unlawful deductions from wages, there is usually a two-year backstop limit, under the Deduction from Wages (Limitation) Regulations 2014. 

Employees should bring a claim within three months of the final deduction. However, in 2023, there was a landmark ruling around holiday pay from the UK Supreme Court, as reported by The Guardian, potentially extending the claim eligibility gap to longer than three months.

What is liquidation?

When a business is insolvent, i.e. it cannot pay its debts when they are due, it may choose to go through a company liquidation to resolve its financial difficulties.

It can start a Creditors Voluntary Liquidation (CVL) process which is director-led and voluntary, so there are more options available and it is less costly than a compulsory liquidation.

In a compulsory liquidation, a court orders the company to close down, usually after a creditor has taken legal action via a winding up petition. Directors do not have control over this process and there will be a thorough investigation into their conduct.

With a CVL, creditors can submit their claims in a more orderly way. The process becomes controlled and more manageable.

What happens to unpaid holiday pay when a company goes into liquidation?

When a company goes into liquidation, employees become creditors for what the business owes them. This includes unpaid wages and any unpaid holiday pay too.

They can claim some or all of it from the government’s Redundancy Payments Service (RPS) via the National Insurance Fund.

Holiday pay is a preferential debt. Under the Insolvency Act 1986, accrued holiday pay is a preferential claim ahead of most unsecured creditors from any remaining company assets.

That’s because when a company goes into administration or liquidation, there is a legal hierarchy determining the order in which different creditor categories receive compensation.

The approximate categories are, in this order:

• Secured creditors with a fixed charge
• Preferential creditors (including employees owed holiday pay)
• Secured creditors with a floating charge
• Unsecured creditors
• Shareholders

Often, there are not enough funds available when a company goes into liquidation to repay all creditor groups in full.

How to claim unpaid holiday pay after a company liquidation

When a company is going through a liquidation process, the insolvency practitioner or official receiver will issue a case reference number and often send information to employees around how to claim.

Employees can also apply to the Redundancy Payments Service (RPS) for certain statutory payments, including holiday pay, if the liquidated company does not have enough money to pay them back.

They can receive compensation for both holiday days owed that they did not take and holiday days they took but were not paid for.

However, employees can only receive payment for holidays they took or accrued in the 12 months before the company formally became insolvent.

They can only get payments for up to six weeks of holiday days. There is also a cap of £751 a week on holiday pay, or £719 if they were made redundant before 6 April 2026.

For more details, read our guide on employees making a redundancy claim.

FAQs

Is overtime holiday pay backdated?

Holiday pay should match what employees would normally earn at work including regular overtime or specific regular allowances.

What happens to any carried‑over holiday pay in liquidation?

If an employee was unable to take some of their statutory holiday in previous years (for example, because they were sick or on maternity leave), they may have a carried‑over holiday entitlement.

In liquidation, they can still claim for untaken but accrued holiday that they were legally entitled to carry over, as long as it falls within the past 12‑month period the RPS uses. But still, the RPS will only cover up to six weeks’ worth of that holiday pay, subject to the weekly cap.

Any additional carried‑over entitlement beyond that is treated as a preferential or unsecured claim against the company, depending on the type of holiday and how it was accrued. It will only be paid if there are sufficient assets.

Can staff claim holiday pay if the company is in administration, not liquidation?

Yes, but in administration, employment does not automatically end and the business may continue trading under an administrator. Holiday pay that accrued before the administrator was appointed is treated as a pre‑administration debt.

Employees are preferential creditors for certain arrears of wages and holiday pay. They can also claim up to six weeks’ holiday pay from the RPS if the company cannot pay.

Holiday pay that accrues after the administrator is appointed and while they remain employed is usually paid as normal. If they are kept on beyond the first 14 days of administration, their wages and holiday pay are administration expenses, which rank highly and are payable out of company funds as they fall due.

If the business is later sold or moved into liquidation, employees may still claim any unpaid pre‑administration holiday pay through the RPS if the company cannot pay.

What happens to unpaid holiday pay if the business is sold and employment transfers under TUPE?

If employment transfers under TUPE when part of the business is sold, employees’ ongoing holiday rights move with them. 

However, any unpaid holiday from before the transfer usually remains a claim against the original employer or via RPS.

For more information, take a look at this: How Does TUPE Work During Insolvency?

Final thoughts

Aside from a CVL or administration, a Company Voluntary Arrangement (CVA) is another potential business recovery option for an insolvent company.

In a CVA, the insolvency practitioner puts together a formal repayment plan while the company continues to trade. This eases the pressure from creditors and can help the business avoid liquidation.

If you found this article helpful, take a look at some of our most popular articles, including:

• Is There A Penalty For Not Issuing Payslips (UK)?
• Putting Personal Money Into A Limited Company: What You Should Know
• Active Proposal To Strike Off: What Happens If The Action Is Suspended?
• How Long Should You Keep Company Records After Liquidation?

Whether your company needs a business recovery expert or just good financial advice, Hudson Weir is here to help. For more information, please don’t hesitate to contact us.