Top 8 Common Mistakes in Managing Employees During Insolvency

Top 8 Common Mistakes in Managing Employees During Insolvency


When a business encounters insolvency, it can be a daunting and stressful experience with numerous challenges and repercussions for all stakeholders, particularly its employees. 

Insolvency can threaten job security and create significant uncertainty and stress among employees.  Business leaders need to understand the profound impact insolvency can have on their workforce and take thoughtful, strategic steps to manage these effects with care and transparency.  

This article identifies the eight most common mistakes businesses make when managing employees during insolvency and offers practical solutions to avoid them. By addressing these, businesses can better support their employees, maintain morale and navigate the insolvency process more smoothly.

  1. Lack of Transparent Communication
    Mistake: Failing to provide regular or clear information about the company’s financial situation.
    Consequence: Leads to rumours, anxiety, and loss of trust among employees.
    a) Develop a clear communication plan with consistent, honest and transparent updates about the company’s situation.
    b) Implement two-way communication to encourage feedback and questions from all employees.
    c) Establish channels for employees to voice concerns and ask questions, such as forums or meetings.

  2. Ignoring Legal Obligations
    Mistake: Failure to comply with labour laws and regulations related to employee rights during insolvency.
    Consequence: Legal repercussions, financial penalties and damage to the company’s reputation.
    a) Seek legal advice to ensure compliance with all relevant laws and regulations. 
    b) Stay updated with any changes in relevant laws and regulations. 
    c) Educate employees about their rights and the company’s legal obligations.

  3. Neglecting Remaining Employees
    Mistake: Focusing only on employees being made redundant and overlooking the needs of the remaining workforce.
    Consequence: Decreased morale and productivity among remaining employees.
    a) Keep remaining employees informed, engaged, and motivated.
    b) Implement strategies to boost morale by addressing concerns and providing reassurance.
    c) Offer training and development opportunities to enhance skills and career prospects.
    d) Providing opportunities for career advancement within the company.

  4. Mishandling Employee Claims
    Mistake: Mismanaging the process for employee claims for unpaid wages and benefits.
    Consequence: Distrust among employees and potential legal action.
    a) Offer clear instructions and support for filing claims.
    b) Ensure efficient claim management by promptly and accurately processing claims.

  5. Inadequate Planning for Redundancies
    Mistake: Lack of planning or poorly executed redundancy process, leading to confusion and perceived unfairness.
    Consequence: Legal challenges and harm to the company’s reputation.
    a) Develop a clear and transparent redundancy plan and effectively communicate the process.
    b) Establish fair and consistent criteria for selecting employees for redundancy.
    c) Provide adequate notice and support, including financial support services to manage finances.
    d) Offer career counselling services.
    e) Assist employees in understanding their rights by providing necessary forms and guidance on how to file claims.

  6. Ignoring Employee Feedback and Concerns
    Mistake: Failing to listen to and address the feedback and concerns of employees.
    Consequence: Decreased morale, trust, and productivity.
    a) Create channels for employees to express their concerns.
    b) Ensure that all feedback is acknowledged and given due consideration. 

  7. Insufficient Notice and Consultation
    Mistake:  Failing to provide adequate notice or consultation before implementing redundancies.
    Consequence: Legal challenges and loss of trust among employees.
    Solution: Ensure compliance with legal requirements regarding notice periods and consultation processes.

  8. Neglecting Employee Support and Well-being
    Mistake: Not offering adequate support for employees’ financial and mental health needs.
    Consequence: Increased stress levels, reduced productivity and higher turnover rates.
    Solution: Establish and communicate support programs for employees’ financial and mental well-being.


Effectively managing employees during insolvency requires careful planning and transparent communication. By avoiding these common mistakes, businesses can foster a more resilient, positive and supportive work environment even during times of financial distress.

Proactive planning and prioritising the well-being of employees are essential to mitigating the negative impacts insolvency can have on the workforce. Ultimately, businesses that approach insolvency with empathy and strategic foresight not only help their employees navigate the crisis and facilitate a smoother transition during these challenging times but also lay the groundwork for a more robust recovery and future success.

If you have any questions in relation to insolvency, please free to contact us by phone at (02) 9633 3333 or via email at

dVT Group is a business advisory firm that specialises in business turnaround, insolvency (both corporate and personal), business valuations and business strategy support.