Directors of limited Companies will certainly have some understanding of redundancy payments and how they might apply to their employees should the situation arise. However, few Company Directors know that they personally may also be entitled to claim statutory redundancy payments. If a Company is struggling financially, despite the best efforts of the Directors to turn things around, sometimes liquidation is the most appropriate scenario. Employees are entitled to claim for arrears of Wages, accrued Holiday Pay and Pay in Lieu of Notice, and if they have been working for the same employer for two consecutive years are also entitled to receive a statutory Redundancy Payment. Company Directors who can prove their status as an employee of the Company can also qualify for certain statutory payments, which can provide a much-needed financial lifeline when their Company is in Liquidation. Nick Brierley, Head of The Insolvency Experts, explains how Company Directors may also be able to claim Redundancy Payments from the Redundancy Payments Service.
What does a Director need to prove?
In order to receive statutory Redundancy Payments following the Liquidation of a Company, a Director must be able to prove that they had more than just an advisory or non-executive role. The Redundancy Payments Service will request details, including information such as; was there a Contract of Employment? What were the day to day responsibilities which the Director fulfilled that contributed towards the running of the Company? In short, the Director must be able to prove to the Redundancy Payments Service that they had a useful and ongoing role in the running of the Company, took a salary using the PAYE scheme and had a similar relationship to the Company as any other employee. If the Director can prove these things then they may be eligible for statutory payments in line with other employees.
The Redundancy Payments Service will be interested in the type of Employment Contract (if any) which existed between the Director and the Company. Obviously, it is easier to prove a Directors’ status as an employee where a written Contract is in existence, but it is worth remembering that a Contract does not have to be recorded in writing in order to be considered legally binding. An oral or implied Contract, whilst perhaps more difficult to prove, can still be sufficient for statutory entitlements to be paid. The important lesson here is for Directors to make sure that they assist in providing the relevant information to enable the Redundancy Payments Service to confirm proof of their employment by having a written Contract of Employment in force.
How does an Individual make an application for Redundancy Pay?
All responsible Directors will be keen to ensure that their employees receive what they are entitled to. All employees that are entitled to make a claim for Redundancy Payments can do so via the Governments Redundancy Payments Service. This also applies to Directors who class themselves as employees. Claims should be made within six months of the date of Liquidation, although in some circumstances we have been able to extend this period to twelve months.
Redundancy Payments available to Directors
There are a number of statutory payments available to Company Directors if their status as a Company employee has been proven. These include Redundancy Pay of up to £489 per week if the Director was made redundant on or after 6 April 2017 (criteria applicable). The message is simple – Directors should have an employment contract in place, which contains details of the following:- o Employment start date; o Any entitlements; o Position; o Role.
For more information regarding Redundancy Pay for Directors please call us on 0300 303 8284 or by email at firstname.lastname@example.org.