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Redundancy for Directors

You may not be aware that there is such a thing as redundancy pay for directors. As a director and employee of a limited company, you may be entitled to it when your company is struggling and liquidation is the likely solution. A large majority of directors are unaware that this option is available to them despite its potential to vastly improve their personal finances.

Directors redundancy & liquidation

If you are looking to liquidate your company due to unmanageable debts, but it does not have sufficient assets to cover the cost of liquidation, in certain circumstances you may wish to fund the liquidation yourself – particularly if you wish to continue the business in the future.

If you don’t have the money to fund it, your director redundancy pay, if you are entitled, could be the windfall you need. In essence, director redundancy monies could provide you with a ‘free’ liquidation, putting the company and its debt to bed, allowing you to walk away from your money-worries.

Criteria for claiming redundancy

There are certain criteria you will need to meet to be able to claim for redundancy as a director. You should be:

  • A director and an employee of the same limited company. This means that you work at the company as any other employee would do and you receive a monthly wage for work and hours completed.
  • Working as an employee for at least two years.
  • Working for a minimum of 16 hours per week.
  • Owed money from the company.
If your company is insolvent, there are options to consider

How to claim for redundancy

If you fulfil the above criteria then you may be able to claim redundancy. We will pass your case to a third party who specialise in employee claims.They will assess it and pass it back to us so that we can inform you of how much you may be entitled to, completely free of charge.

Once this is done, we will then advise you on the best practice for obtaining your state entitlements.

All claims for redundancy will be made through the National Insurance Fund which is where National Insurance contributions are held to pay for statutory schemes, like redundancy and state pensions.

You may also be able to claim for any unpaid wages (up to 8 weeks) and holiday pay (up to 6 weeks) when submitting your claim.

How the amount you receive is worked out

Your claim will be assessed to confirm that you are eligible for redundancy funds. Then an amount will be calculated based on the length of your service with the company, your age and your current rate of pay.

It is worth noting your rate of gross weekly wages at the time of redundancy is capped at £479 a week and the length of your service is capped at 20 years.

Directors, who are owed wages, etc., by an insolvent company become preferential creditors, so your claim is likely to be dealt with quickly and efficiently; much like that of your employees.

As mentioned earlier, you may also be able to claim backdated salary and holiday pay.This is dependent on your circumstances.

In summary

Not many directors are aware about the redundancy available to be paid out to them if they meet certain criteria. Eligibility is fairly broad so it’s not something to overlook – there’s a strong chance your circumstances will qualify. These payouts can be invaluable when it comes to self-funding liquidations.

How we can help

If you’re unsure of whether or not you qualify for directors redundancy and are worrying about funding a liquidation, we can give you advice regarding your eligibility and guide you through the liquidation process. One of our business partners will also assess your entitlement for free so that we can provide you with specific figures. All initial advice is free and comes with no obligation to follow up with our services, so you have nothing to lose by enquiring.

Authored by Lisa Hogg

Lisa Hogg

Director & Licensed Insolvency Practitioner

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