Creditors’ Voluntary Liquidation and Director Redundancy Explained

Are directors entitled to redundancy during liquidation?

Creditors’ Voluntary Liquidation (CVL) is a formal procedure for limited companies that are experiencing severe financial decline, with no possibility of being rescued. The process means the business will close down permanently, and its name removed from the Companies House register.

When a company is liquidated, all jobs are lost and eligible members of staff can claim redundancy. It’s a little known fact, however, that the directors of the company may also be able to claim redundancy pay, along with other statutory entitlements. 

So what is the connection between Creditors’ Voluntary Liquidation and director redundancy, and how do you claim redundancy pay as a director when your company cannot afford to pay its creditors?

Creditors’ Voluntary Liquidation and director redundancy

The liquidator appointed to deal with the CVL acts for the company’s creditors, with the aim of providing as high a return as possible. If your company enters into Creditors’ Voluntary Liquidation, the office-holder will obtain a professional valuation of the business’ assets prior to selling them at auction.

The proceeds are then used to repay creditors, but Creditors’ Voluntary Liquidation is a formal process that attracts professional fees. This is why it’s common for directors to believe the procedure isn’t an option because of their company’s untenable financial position.

Making a successful claim for redundancy is hugely beneficial. It can enable company directors to pay the professional fees associated with a CVL, and so avoid having to wait to be forcibly liquidated by a creditor.

When can directors claim redundancy pay?

In some circumstances company directors can make a claim for redundancy when their company undergoes insolvent liquidation. In addition to the principal redundancy payment, they may also be able to claim other entitlements, including unpaid wages and holiday pay.

So what are the basic criteria for claiming director redundancy?

• You must have worked under a contract of employment, whether written, oral, or implied, for at least two years
• You need to have worked a minimum of 16 hours per week in a practical role
• You must be owed money by the company

If your claim is successful, payments will be drawn from the National Insurance Fund (NIF), so how much redundancy pay can you claim?

How much redundancy pay could you claim as a director?

If you’re eligible for director redundancy, the amount of your claim will be based on several factors:

• Your age
• Length of service (capped at 20 years)
• Gross weekly pay (capped at £571 for redundancies after 6th April 2021)

You won’t have to pay tax or National Insurance Contributions (NICs) on redundancy pay up to £30,000, but arrears of wages and holiday pay are taxable. The liquidator will provide the necessary form to make a claim, but it’s advisable to seek confirmation that you’re eligible from an expert in director redundancies.

An average claim for director redundancy is currently around £9,000, so it’s worthwhile finding out from a specialist whether you’d be eligible to make a claim if your company had to enter liquidation.

Even if you don’t need to use your redundancy pay for the liquidator’s fees, you might be able to repay some of the company’s debts with the money, or use the payout to support yourself and your family following the closure of the company.

Find out if you’re eligible for director redundancy

UK Liquidators has extensive experience of helping directors voluntarily place their company into liquidation via CVL, and can provide the guidance you need. We’ll also be able to advise on your eligibility for director redundancy, and can explain the process in more detail.

Please contact one of our partner-led team to arrange a free, same-day consultation – we operate from a broad network of offices throughout the UK.