Directors and Redundancy

Under certain circumstances, company directors may be entitled to redundancy pay when a business shuts down.

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How we can help with directors and redundancy

Company Insolvency Advice has been helping company directors with struggling businesses claim redundancy (and other statutory entitlements such as holiday pay and unpaid wages when the company enters liquidation.  The average UK claim is around £12,000!

✓ Find information on statutory entitlements for company directors

✓ Learn how to make a director’s redundancy claim

✓ Access free advice that applies to your individual circumstances

✓ Discuss company rescue solutions that could keep your business afloat

Directors and Redundancy

The Options for Redundancy For Directors of a Company

When a company goes out of business, it is well understood that former employees will receive a redundancy payment. However, fewer people are aware that company directors may also be entitled to claim a redundancy payment following the liquidation of a company. Provided the business has been trading for over two years, directors may be able to claim for directors’ redundancy payments from the National Insurance fund when the company closes, along with other statutory entitlements. These include notice pay, holiday pay and unpaid wages.

The average claim for directors’ redundancy pay in the UK is around £12,000, so it is crucial that you speak to an expert about your eligibility if you think you may be entitled to claim. This can help you to recover financially from the closure of your company and move on.

However, if your business is yet to close, you should speak to an expert for advice on whether or not this is the only way to respond to your financial difficulties. The team at Company Insolvency Advice has significant experience in a variety of company rescue and recovery solutions that are applicable to different circumstances, and could avoid the need to close your company. If you act quickly when you notice that your business is at risk of failing to pay its debts, there may be several different approaches you could take to resolve the problem.

Even if you feel that things are too late – if you have received statutory demands for payment or notices of legal action from creditors – there are solutions that may help. To discuss the viability of rescuing your business and the solutions that may help, or for support and guidance in claiming redundancy for directors, contact us today. Call us on 0800 999 0666 or use our online enquiry form to request a call back.

Who Can Claim Directors Redundancy Pay?

To make a claim for a redundancy payment, the director of a company that has closed down must also be considered as an employee. This means that you must have a practical role in the day-to-day operation of the business, and those serving in a purely advisory or non-executive capacity are ineligible to claim. The director’s role as an employee must be recognised by a contract; this may be an oral or implied contract, but it is always best to have a written contract of employment to ensure the highest chance of making a successful claim.

There are several other criteria that the director and the company must meet to enable the director to claim redundancy pay. These include:

  • The company must have been trading for at least two years.
  • The director must have been employed by the company for at least two years.
  • The director must have worked more than 16 hours per week.

It can be difficult to know whether or not you are eligible to claim, especially given the ambiguity of the distinction between a director and an employee in some cases. It is also vital to get your application right in the first instance to avoid delays and reduce any risk of your claim being denied. As such, it is useful to work with an expert when making your application.

The team at Company Insolvency Advice has helped hundreds of company directors claim redundancy (and other statutory entitlements, such as holiday pay and unpaid wages) when their businesses have entered Liquidation. We have also supported companies with financial difficulties to continue and recover, thanks to our vast experience with company rescue solutions. Contact us today for support in claiming redundancy pay or for advice on resolving corporate debt challenges.

How Much Is Redundancy For Directors Worth?

The amount of redundancy pay directors can claim is calculated according to a number of factors, including their age, their gross wages at the time of the company’s closure, and their length of service. Gross wages are capped at £643per week (for directors aged 22 and over) for the purposes of this calculation, while length of service is capped at 20 years. This means that, while there is a theoretical maximum payout, the actual value can vary considerably – although it is worthwhile to remember that the average payout in the UK is around £12,000.

The figure you will receive is calculated according to the sums below:

  • If you are aged 18-21, you will receive half a week’s pay for every year that you worked for the company. 
  • If you are aged 22-40, you will receive one week’s pay for every year that you worked for the company.
  • If you are aged 41 or over, you will receive one and a half week’s pay for every year that you worked for the company.

Statutory redundancy payments are not subject to tax, which means that if you are estimating the payout you could receive, you will not need to deduct anything from the final total.

Alongside the base level of redundancy pay to which you are entitled according to the calculations above, you may also be able to make claims for certain statutory entitlements, depending on your circumstances.

What Other Statutory Entitlements Can Company Directors Receive?

A director may also be eligible to claim for arrears of wages, pay in lieu of notice and holiday pay, in circumstances in which these are applicable. Unlike statutory redundancy payments, any holiday pay or unpaid salary that you are able to claim will be subject to national insurance and tax liabilities.

Arrears of Wages and Holiday Pay

A director can claim for up to eight weeks of unpaid wages and up to six weeks’ accrued holiday pay.

Pay in Lieu of Notice

When a company goes into Liquidation, your employment may be ended without you being given any notice. In such cases, you may be eligible to claim pay in lieu of notice. This is paid at a rate of one week’s pay for every year that you worked at the company, capped at 12 years.

How To Make A Claim For Directors’ Redundancy Pay?

To claim for redundancy, you should first determine whether you are eligible. You can discuss this with the Insolvency Practitioner, or Liquidator, who is working with your company, or contact Company Insolvency Advice. Once you have contacted a licensed Practitioner, they will be able to help you make the claim. In most cases, you must do this within six months of the date that the company goes into Liquidation.

As we have outlined above, redundancy payments for directors will only be applicable in circumstances where a business is forced to close. If you are concerned that your business may be on this path – due to financial difficulties or other problems that have arisen – and think that you may need to liquidate your business, it is important to know that you may be entitled to a redundancy payment.

However, financial problems do not always need to result in the closure of your business. In fact, you may be able to acquire short-term financing that would help to pay your debts, renegotiate your payment terms with creditors to make repayments more manageable, or change your internal processes to prevent cash flow problems arising. 

To discuss the company rescue solutions that could restore your business to solvency and prevent the need for redundancies, speak to the friendly team at Company Insolvency Advice today. Call us on 0800 999 0666 or use our online enquiry form to request a call back at your earliest convenience.

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Business Advice Expert

Robert Cooksey

Robert Cooksey

Director Advice Line: 0800 999 0666

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Contact our team of company insolvency specialists

Company Insolvency Advice is a leading business rescue, corporate restructuring and insolvency specialists, with years of experience in providing corporate debt solutions. We understand the daily pressure you are under as a director and our team of expert consultants cover the whole of the country in order to discuss debt solutions with company directors.

The first port of call should be to consult with a licensed insolvency practitioner to discuss your options. Thankfully, you can arrange a free initial consultation with one of our local insolvency practitioners at your convenience.

Get in touch with us today on 0800 999 0666 or fill out our online enquiry form.

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