When a company finds itself in a position of extreme financial and operational difficulty, and there is no alternative but to place the company into liquidation, it is widely accepted that any employees of the insolvent company will be made redundant and will subsequently be entitled to a redundancy payment.
What is less understood, however, is that the directors of insolvent limited companies are also entitled to claim redundancy from their company once it enters liquidation. This is because, as well as being its director, many company directors are also classed as employees of the business.
Director redundancy works in the same way as redundancy for employees. There are certain criteria which must be met in order to qualify, with the amount an individual is entitled to calculated based on age and length of service with the company.
Director Redundancy Entitlement – Did you know that as a limited company director, you may be entitled to claim redundancy if your company enters into an insolvent liquidation process? We can point you towards a fully regulated third party who can provide advice on your right to claim director redundancy if this is applicable to your situation. To understand if you are entitled, give a member of our team a call on 0800 063 9262, or email [email protected].
In order to qualify as an employee of the company, and therefore be entitled to redundancy, a director must:
The amount you may be entitled to claim is based on several factors including your age at the time of redundancy, your length of service, and your gross weekly pay. For the purposes of redundancy, length of service is capped at 20 years, and gross weekly pay is capped at £571 per week. For each full year served you will be entitled to the following amount:
As well as being eligible for a redundancy pay-out, you may also be entitled to additional statutory entitlements including holiday pay, notice pay, and unpaid wages. Depending on your circumstances you could be entitled to up to six weeks of accrued holiday pay, and up to eight weeks of unpaid wages. You are also likely to be entitled to up to 12 weeks’ notice pay depending on your length of service.
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While it is likely that many company directors do qualify for redundancy once their company becomes insolvent, it is important to note that redundancy can only be claimed if the company enters a formal liquidation process such as a Creditors’ Voluntary Liquidation (CVL). If the company is struck off – or dissolved – using the DS01 form, directors will be unable to make a claim. Placing a company into a CVL does come with a price tag attached, however, this cost may be eclipsed by the potential redundancy claim. Closing your company by way of a CVL also provides peace of mind that all outstanding creditors and company matters are handled in the appropriate manner and in accordance with the Insolvency Act 1986.
When a company makes redundancies, it is the company’s responsibility to cover the redundancy payments owed. However, in the case of an insolvent company, this is simply not possible. In this instance, payment is made by the Redundancy Payments Service who take payment from the National Insurance Fund. This is used to pay both employees and directors.
Directors can make a claim for redundancy themselves, or alternatively there are a number of independent firms who can assist with the application. At UK Liquidators we can recommend a fully regulated claims management firm who have helped thousands of eligible company directors successfully claim the money they are entitled to.
At UK Liquidators, our service is fully partner-led and your case will always be overseen by a fully licensed insolvency practitioner.
If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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