We have an employee that has been made bankrupt. He has asked us not to pay his salary into his bank account, but to give hime a cash cheaque, are we acting illegaly
Not at all. Your employee has a right to receive his salary in whatever format he chooses, and if he decides to not declare this to his Trustee then this is his failing and not your own.
If you are at all concerned, a quick chat with the Official Receiver might be in order - but you really need your employee's permission to do this, so as not to fall foul of employment law issues.