Is there any Scope for Redundancy Pay for Directors?

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 director redundancy payments. Employees are able to claim for:

  • arrears of wages
  • accrued holiday pay
  • pay in lieu of notice
  • statutory redundancy payment if working for the same employer for two consecutive years

Company Directors who can prove their status as an employee of the company can also qualify for certain statutory redundancy payments, providing a much-needed financial lifeline.If a company is struggling financially, despite the best efforts of the Directors to turn things around, sometimes liquidation is the most appropriate scenario.If you want any expert guidance on how to approach directors’ redundancy or any other area related to redundancy payments during insolvency, get in touch with the team here at The Insolvency Experts today.

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4 Key Questions on Director Redundancy in Insolvency

What does a Director need to prove to qualify for Director Redundancy?

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?
  • how did they contribute 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.
 

What contract type is required to qualify for Directors’ Redundancy?

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 someone make an application for redundancy payment in insolvency?

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 12 months.The message is simple; a Director should have an employment contract in place, which contains details of the following:

  • Employment start date
  • Any entitlements
  • Position
  • Role

 

How do I get the right advice on director redundancy payments in insolvency?

For more information regarding redundancy pay for Directors, you should contact an insolvency practitioner who is well versed in advising clients in the UK on this process. Here at The Insolvency Experts, we have a wealth of experience in such applications, so please contact us by phone on 0300 303 8284 or alternatively you can email us at enquiries@theinsolvencyexperts.co.uk.

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