Am I entitled to redundancy pay as a company director?
If your company is struggling financially and has debts it cannot pay, it may be in everyone’s best interests to put it into liquidation to close it down. As part of the process, your employees will be made redundant and they are entitled to a redundancy payment to soften the financial blow. What many company directors don’t realise is they may also be eligible for redundancy pay.
Company director redundancy pay can help to provide financial stability when your company has failed. If you work as an employee of the business, you could be eligible for a payout that averages around £10,000. You could use that money to cover the cost of the liquidation process (if the company has insufficient assets to do so) or help you move on to something new.
What is company director redundancy pay?
What is company director redundancy pay?
Director redundancy pay is a statutory payment you are entitled to if your company enters an insolvent liquidation process and you have worked for the business as an employee. There are criteria you must meet to qualify, and factors such as your age and length of service will determine how much you receive.
As well as redundancy pay, company directors may be eligible for statutory entitlements including holiday pay, notice pay and unpaid wages. But again, only if the company enters an insolvent liquidation process such as a Creditors’ Voluntary Liquidation (CVL).
Am I eligible for director redundancy pay?
To claim director redundancy pay, you must have had more than an advisory or non-executive role in the business. You may be eligible if you:
- Worked for the company for at least two years
- Worked at least 16 hours a week
- Worked under a contract of employment, whether it was written, verbal or implied
As a rule of thumb, if you received a salary from the company under the PAYE scheme, there’s a good chance you’ll be eligible for the payment.
How do I claim company director redundancy pay?
How do I claim company director redundancy pay?
As part of the liquidation process, the Insolvency Practitioner who acts as the liquidator will ask you questions about your role in the company and your day-to-day responsibilities. If it is evident that you had a practical and ongoing role in the business in the same way as other employees, you will be able to make a claim.
The liquidator will give you a claim form from the Insolvency Service to fill in. You must make your claim within 12 months of the company entering the liquidation process. You can also use third-party claim management firms to assist with the application. If you’d like assistance, we can recommend a reputable and regulated firm in this area.
How much director redundancy pay can I claim?
How much director redundancy pay can I claim?
If you meet the relevant criteria, the amount you receive is determined by your age, length of service and rate of pay. If you were made redundant on or after the 6 April 2023, the payout is capped at £643 (gross) per week for 20 years of service, giving a maximum payout of £19,290.
For every full year you served with the company, you will receive:
- Age 18 to 22 – half a week’s pay
- Age 22 to 40 – one week’s pay
- Age 41 or older – one-and-a-half week’s pay
You will receive your money from the Redundancy Payments Service and it will be tax-free.
What other payments are directors entitled to on liquidation?
What other payments are directors entitled to on liquidation?
If you are owed money by the company when it is liquidated other than your initial investment, you may also be able to make a claim. You can claim for up to eight weeks of unpaid wages, six weeks of accrued holiday and 12 weeks of notice pay, depending on your length of service.
Do I have to liquidate my company to claim director redundancy pay?
Do I have to liquidate my company to claim director redundancy pay?
Yes, you are only entitled to director redundancy pay if your company enters an insolvent liquidation procedure. If you try to close your company through the Voluntary Dissolution process (also known as Strike Off), you or your employees will not receive a redundancy payout.
There are two insolvent liquidation procedures: Creditors Voluntary Liquidation (CVL), which you put the company into voluntarily, and Compulsory Liquidation, which a creditor forces you into. Although you can claim director redundancy pay if you enter Compulsory Liquidation, you have to wait for a creditor to initiate the process, so your payout will be delayed. It also carries greater risks to you personally due to the robust investigation the liquidator will carry out into your role in the company’s insolvency, which may uncover accusations of director misconduct.
Need advice?
Need advice?
If you are worried about the financial health of your business and want to know whether you could be eligible for company director redundancy pay, please contact our team. We provide a free, same-day consultation so you know exactly where you stand.
