Helping directors online for over 23 years.

Talk to us today in confidence:

I Can't pay staff wages - What can I do?

9th November, 2020
Robert Moore

Written ByRobert Moore

Marketing Manager


Rob has over a decade of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.

Rob is now working with the Board at KSA Group Ltd to develop strategic marketing programmes to support the business plan and drive more company rescues.

Robert Moore
  • Firstly answer…Why can I not pay my staff?
  • Do I have any options to try and resolve this?

For any company, its staff are the lifeblood. You cannot run without them – operations would come to a halt, you would not be able to take on any new work and in all honesty, the business would fall. You must have reliable staff in order to keep the business going.

However, for them to be reliable, they must be able to rely on you and receive that hard-earned wage which they put in all the effort for! Ensuring staff are paid, on time, should be a priority. But…it becomes an issue if you fear you cannot pay the staff wages at the end of the month. If this is the case, it is likely insolvency is looming! Action must be taken immediately.

When this nightmare becomes reality, what can you do? Do you have options? Here we explore further…

Firstly answer…Why can I not pay my staff?

Simply put, the answer is cashflow! The company does not have enough cashflow to operate properly thus wages cannot be paid.

Remember a company can be making profit on paper but if the money is not in the bank then cashflow problems arise.   This may be short term, for example due to seasonality. However, it may also be longer term. This could be due to bad debts or a loss of large contracts. Late payments from clients could also be a factor.  This means that the company will always be trying to “catch up”.

Do I have any options to try and resolve this?

It depends on whether cashflow problems are short or long term.

Short term

If the cashflow issue is short term, explain to the staff and update them of the situation. You have got some solutions:

  1. Talk to staff and explain to them the situation truthfully. Ask them to wait for payment, explaining how you believe the business will be able to pay. Hopefully, the response will be positive and aligned to support the business. You should do this as soon as you realise you are unable to pay their wages, giving them a pre-warning, so it does not become a nasty shock on pay day. It is more likely to have the situation understood and accepted, as you would be seen to be taking responsibility and being fair, giving employees the chance to find alternative plans for obtaining money to fund that periods living expenses.  A word of caution.  This is most likely to work in very small businesses of less than 10 employees.  In larger businesses staff are less close to management and are less likely to be supportive.
  2. Take out a loan. This could be from a family member, friend or bank, and can be either short term or long term. The most appropriate would be to take out a short-term loan as this carries less risk for the business. It is likely in this scenario that any loan will need to be personally guaranteed so think hard about the risks. Be aware that an option here is to apply for a Bounce back loan to support you. However, this should only be the case if you can be sure the business is viable going forward.
  3. Withhold payment, temporarily of course, from a non-mission critical supplier or HMRC.  This is known as robbing Peter to pay Paul and should be a last resort.
  4. Look to invoice financing i.e. discounting and factoring. A factor of the cashflow issue may be late payment from clients. Invoice financing allows you to immediately receive a set percentage of your unpaid invoices. Note: a small fee is involved here but, if it means you can cover your staff wages as a result, then it is most certainly worth considering.

Long term

Ultimately, when you fail to pay your employee wages, they become a creditor.  The best option here, is to speak with a licensed insolvency practitioner about the following insolvency proceedings which may be applied:

  • Company Voluntary Arrangement: Often this allows a business to continue trading without interruption. Deals are made with creditors about any outstanding liabilities – some of the debt may be written off or renegotiated to monthly instalments.
  • Administration: Employees are entitled to claim for wage arrears and unpaid holidays. If the business ends up being sold through the administration process, employees’ existing contracts will be transferred over via TUPE. The new company will become responsible for handling any wage arrears and preserving the current T&Cs of employment.
  • Liquidation: If the business proves unsustainable, you pay put your company into a Company Voluntary Liquidation. This ends its life. In this case, employees are made redundant. The right exists for them to claim redundancy and other statutory entitlements such as arrears of wages.

All in all, the most important thing is to communicate with employees and keep them aware. You should also be sure to get advice and seek help early on. So, talk to us to see how we can help.  If you can’t pay the wages then the business is insolvent and as a director you have a duty to the creditors.  Call us on 0800 970 0539 today.

Worried Director What Will Happen To Me After Liquidation?

in Company Liquidation What is …?

"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director.  If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020.  Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly.  I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim.  This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork".  It isn't worth the risk.  If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP)  or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at 

Worried Director What Will Happen To Me After Liquidation?

Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Notice of Intention To Appoint Administrators
Man with umbrella

What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

What Is A Winding Up Petition By HMRC or Other Creditor

Related Guides

Related News

We can help you get out of the mess!

Call now for free and confidential advice