When a company is insolvent – meaning it cannot pay its debts as they fall due – urgent decisions are often required to wind down the company’s operations, preserve value and manage creditors. However, it is critical to recognise that this urgency does not displace an employer’s employment law obligations. Given recent caselaw and legislative reform, it is essential for businesses in distress to obtain employment law advice alongside insolvency advice, and where collective redundancy situations arise, to start employee consultation as early as possible.
In recent years, legislative reform has significantly strengthened employee protections in an insolvency, reflecting a clear policy shift towards greater accountability for employers and insolvency practitioners (“IPs”), when managing workforce reductions. Following the recent introduction of the Employees (Employers’ Insolvency) (Amendment) Act 2026, we take a look at the law in this area.
Historically, there was some uncertainty around the precise interplay between insolvency law and employment law. The obligations (if any) of IP’s under the Protection of Employment Act 1977 (as amended) (the “1977 Act”) were unclear. This, at times, resulted in many IPs proceeding on the basis that their primary duty was to creditors and realising assets, rather than engaging with employees. In recent times, however, IPs had taken a more cautious approach to collective redundancy obligations and many had elected to comply strictly with the provisions of the 1977 Act.
In order to enhance protection and provide greater transparency for employees, two recent Acts have since closed perceived gaps and provided greater clarity on an employer / IPs obligations in an insolvency:
- The Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Act 2024 (“2024 Act”) which removed the insolvency exemption in a collective redundancy situation and made liquidators, receivers, or any person appointed with responsibility for managing an insolvent business (defined as a “responsible person” under the 2024 Act) subject to the same notification and consultation duties as any employer.
- The Employees (Employers’ Insolvency) (Amendment) Act 2026 (“2026 Act”) addressed a related gap: prior to the enactment of the 2026 Act, employees of businesses that simply ceased trading without any formal insolvency process had no route to the Insolvency Payments Scheme (“IPS”). The new “Deemed Insolvent Process” under the 2026 Act, which commenced on 8 June 2026, now gives them one.
What are employer insolvency obligations at a glance?
Whether a business enters liquidation, receivership, bankruptcy or another insolvency process, employment legislation continues to apply. Employment-related liabilities represent one of the most significant exposures facing distressed businesses. Outstanding wages, holiday pay, statutory redundancy payments, unfair dismissal claims and collective redundancy obligations can all arise regardless of an employer’s deteriorating financial position.
Early warning signs often emerge well before formal insolvency occurs, which may include persistent cashflow difficulties, payroll challenges, delayed payments to suppliers, restructuring proposals and workforce reductions. When this occurs, businesses should carefully consider both their corporate and employment law obligations, as failure to address such obligations early can significantly increase financial exposure and may lead to regulatory and WRC claims.
Collective redundancies from an insolvency perspective
A collective redundancy arises where the number of proposed redundancy dismissals within a 30-day period exceeds the statutory threshold applicable to the size of the workforce at the particular establishment. The process is regulated by the 1977 Act which requires a formal information and consultation process before dismissals take effect.
As stated, before the 2024 Act, there was some uncertainty regarding the precise application of the collective redundancy framework in an insolvency scenario.
In the prolific Debenhams Retail Ireland case, the practical difficulties of collective consultation amid sudden business failure were highlighted in light of the ambiguity of the application of exemptions to IPs. This case demonstrates that even when IPs run a good process, they can still find themselves in high profile insolvency litigation. In this case, while the liquidators were found to have engaged and consulted with the employees’ Trade Unions, both the Labour Court, and the High Court on appeal, found that the liquidators had not started the process “in good time” when they had first contemplated redundancies. Here, the consultation obligation was found to have arisen on 9 April 2020, however the consultation process did not begin until 14 April 2020. Nevertheless, the High Court overturned the Labour Court’s decision to award compensation to the employees, on the basis that there was no evidence of any financial loss flowing from the delay to consult, and compensation should reflect actual loss evidenced and not function as a penalty.
The position was fundamentally changed by the insolvency reforms introduced under the 2024 Act, in removing the exemptions and strengthening employee protections where collective redundancies arise during an employer’s insolvency. Key changes include the following:
- a new statutory definition of “responsible person” bringing IPs expressly within scope;
- insolvent employers and IPs are no longer exempt from statutory collective redundancy requirements and must abide by the full consultation framework, including the requirement to initiate consultation at the earliest opportunity and in any event at least 30 days prior to issuing the first notice of dismissal;
- comply with the statutory 30-day period to notify the Minister for Enterprise, Tourism and Employment of a proposed collective redundancy under section 14(3) of the 1977 Act; and
- directors and liquidators face new notification requirements to keep employees informed at each stage of the insolvency process.
Where these obligations are not complied with, IPs (or anyone else appointed as a responsible person) may face personal civil or criminal sanction.
A previous Matheson article discussing the 2024 Act in detail is linked here.
What are the changes to the framework for payments to employees?
Separate from redundancy obligations, Ireland’s Insolvency Payments Scheme (“IPS”) provides an important financial safety net for employees where their employer becomes formally insolvent and is designed to protect employees who would otherwise be left without payment of certain statutory entitlements.
Eligible employees may claim a range of payments, including:
- outstanding wages;
- holiday pay;
- statutory minimum notice pay;
- certain pension contributions; and
- other qualifying statutory entitlements.
Eligible employees claim the payment from the Department of Social Protection. While the IPS has long provided valuable protections, it had a critical gap as access generally required the employer to be formally insolvent. In practice, some businesses ceased trading, abandoned operations or simply disappeared without entering liquidation, receivership or bankruptcy leaving employees owed wages and other statutory entitlements with no route to the IPS.
The 2026 Act aims to fix this significant gap by introducing a new Deemed Insolvent Process, which will allow employees who are owed money by their former employer, where the employer ceased trading absent formal insolvency proceedings, to seek access to the IPS for debts falling due on or after 8 December 2024. A historical Deemed Insolvent Process for comparable cases dating back to 22 October 1983 is expected to open in Q1 2027. The process is intended to provide employees with a practical route to recover outstanding entitlements where no formal insolvency procedure exists.
How does the Deemed Insolvent Process work?
| Step 1: Employee Notice |
| An employee who is owed qualifying payments serves a notice on the employer seeking payment of the outstanding entitlement. |
| Step 2: Employer Response |
| The employer is afforded an opportunity to respond to the notice and discharge the liability. If the employer does not pay the amount within 8 weeks of the employee’s notice being served, the employee may apply to the Minister for the employer to be deemed insolvent. |
| Step 3: Application to the Minister |
| Where payment is not made, the employee may submit an application to the Minister seeking a determination. Employers will be notified of any Deemed Insolvent Process claims and will have at least 4 weeks to respond. |
| Step 4: Deemed Insolvency Determination |
| If the statutory criteria are satisfied, the employer may be deemed insolvent solely for the purposes of the IPS. |
What are the limitations of the Deemed Insolvent Process?
While the reforms are significant, it is important to understand their limitations.
A deemed insolvency determination:
- applies solely for the purpose of facilitating access to the IPS;
- does not place the employer into liquidation, receivership or bankruptcy;
- does not alter the employer’s corporate status; and
- does not create a general insolvency finding for other legal purposes.
The mechanism is therefore targeted and limited in scope, focusing specifically on employee access to statutory protections.
Read together, the 2024 and 2026 Acts represent a coordinated strengthening of employee protection across the lifecycle of financial distress for a business. This sits alongside employees existing status as preferential creditors in respect of certain unpaid wages and holiday pay.
What are the key takeaways for employers and insolvency practitioners?
The landscape governing insolvency and employment law continues to evolve, with a clear legislative emphasis on strengthening employee rights. Based on these legislative reforms, the following key themes emerge:
- Formal or informal insolvency no longer shields or suspends an employer’s obligations under employment law. Employers must continue to manage workforce issues carefully, even during periods of severe financial distress. This creates a further layer of financial exposure for insolvent employers: once the Department of Social Protection pays an employee under the IPS, it can pursue the employer directly to recover those payments, meaning the employer may face the State as an additional creditor.
- Collective redundancy obligations apply fully in insolvency situations. Consultation, information and notification requirements can no longer be overlooked simply because a business is entering liquidation or receivership.
- Employers can expect greater scrutiny regarding unpaid employee entitlements. The 2026 Act significantly expands employee protections by introducing the new Deemed Insolvency Process. Employees now have a route to access the IPS where a business ceases trading without entering formal insolvency proceedings and it is expected that employers will engage with the process.
- Insolvency and employment law issues need to be considered together rather than in isolation. Decisions made in relation to workforce reductions can have significant legal and financial implications. Employers and IPs must remain vigilant in ensuring that employment obligations are fully integrated into any insolvency or restructuring process.
- Obtaining legal advice at an early stage remains one of the most effective ways to minimise risk, ensure compliance and reduce the likelihood of costly disputes.
Contact us
For more information on any of these issues, please contact a member of the Employment, Pensions and Benefits team, the Corporate Restructuring and Insolvency team or your usual Matheson contact.
