Your rights when a company goes bust

Updated on 15 November 2012

With more and more companies running into trouble, what are your rights if you're an employee, customer, shareholder or creditor? And what if you owe them money?


In some cases when a company goes into administration, employees will be asked to keep working. The administrators might try and keep the company going until it can be sold or the business made viable again. Or they might try and sell stock. A good example of this is Comet, which went into administration last month; currently stores are still open and staff still working.

If the administrator decides it doesn’t want or need some or all employees, then they would have to be made redundant under standard redundancy rules.

If the company is put into liquidation rather than administration then employees are likely to be made redundant by the liquidator. These employees should receive redundancy pay as per the terms of their employment contract.

If the business is unable to pay up then employees are ranked as preferential creditors and should fill in forms provided by the company’s insolvency practitioner. They could get money from the state’s National Insurance Fund but it’s not guaranteed they’ll get everything their employer owes them.

Each situation is different when it comes to employees so if the firm you work for goes into administration or liquidation you should speak to the administrators or liquidators and find out what your position is.


If you’ve paid for something, not received it and the company has gone bust your position depends on how you paid for the goods.

If you paid by credit card and the goods cost between £100 and £30,000, your card issuer is obliged to refund you under Section 75 of the Consumer Credit Act which states that the credit provider is "jointly and severally liable" for your purchase.

If you made your purchase using a Visa or Mastercard debit card you may be able to claim your money back using what's known as the chargeback service. To use this process you’ll need to contact your bank within 120 days or becoming aware of the issue and ask it to instigate a chargeback for the value of your purchase.

If you paid for an unfulfilled order by cash or by some other means, you will need to contact the administrators and make a claim directly. However, you’re likely to be at the end of a long list of creditors.

If you have gift vouchers or a gift card you might find the administrators no longer accept them and you too will be added to the list of unsecured creditors.


Everyone’s heard the warning that “the value of your investment can go up or down” and it’s every investor’s worst nightmare that a company they’ve invested in goes bust.

The majority of shareholders won’t get any money back at all. Once a company has gone bust, the market is suspended and shareholders won’t be able to sell their shares.

However, some types of investment work slightly differently. Corporate bondholders, for example, who essentially own tranches of corporate debt, will be deemed creditors of the failed company and will be paid off before shareholders who own equity in the company.

“Preference” shareholders tend to fare better than ordinary shareholders as they will be higher up the list of creditors if a company goes bust. Preference shares are a special class of shares that act as a hybrid of debt and investment and pay a fixed rate of interest much like bonds.

Rather than investing directly in shares and putting all their eggs in one basket, many investors choose to invest in shares through funds which spread the risk across a number of companies.

Freelancers, contractors and suppliers

If you’re a supplier, contractor or freelancer, a company going into administration when it owes you money is bad news.

On the date of the administration, all amounts the company owes are frozen. Administrators will aim to sell the company or its assets and, after the costs of the administration, the proceeds will be allocated to the creditors.

However there are different types of creditor and unsecured ones – a category which contractors and freelancers fall into – are near the bottom of the list. Secured and preferential creditors get paid first.

I fell into the category of unsecured creditor once when a magazine I’d done some freelance writing for went bust. They owed me about £1,800 but I never saw a penny of it – and this can be the case for many unsecured creditors.

If you owe the company money

If you owe a company money and it goes bust you might think this means your debt is written off – but I’m afraid that’s not the case.

The administrators or insolvency practitioners will set up new bank accounts for the company and you’ll still be obliged to pay. They’ll be keen to get as much money owed to the company as possible so they can pay off creditors.

More on your rights

Small claims court: get the money you are owed

Financial Ombudsman Service: how to complain to the FOS

How to get your money back after a scam


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