Director Redundancy

Director redundancy has been around for years but awareness of it is still fairly low. When a company goes under due to cash flow problems and being unable to pay debts, the director(s) of the company often have a valid claim for redundancy.

When a company director is on the payroll (i.e. paid via PAYE), they are eligible for a number of statutory entitlements in the same way that their employees are. A common misconception is that a director cannot claim redundancy payment when their company enters liquidation or administration whilst their employees can; however, in most cases directors can apply for redundancy and other statutory entitlements based on a number of qualifying criteria.

Do You Qualify?

Essentially, if your company is either in liquidation or the writing is on the wall and liquidation seems inevitable, there is a very high chance of you receiving director redundancy if you meet the following criteria:

• You are paid via PAYE or have been in the past
• The company has been incorporated for at least two years
• The company has traded in the last 12 months
• The company was insolvent at the time of liquidation or is currently insolvent

Redundancy payments are calculated on a multiple of length of service and at a maximum of £525 per week. In addition, directors could be eligible for up to eight weeks of unpaid wages and up to six weeks unpaid holiday pay. Any settlement figure will be based on eligibility and individual circumstances. The average redundancy payment, according to the Redundancy Payments Service, is around £9,000.

Where does the money come from?

Directors of a struggling company often fail to consider their redundancy entitlements – wrongly assuming that because the company bank balance is empty or in the red, there is no claim potential. When a company is insolvent, the money for redundancy will come from the National Insurance Fund, a giant government insurance scheme into which we all pay as we work – otherwise known as National Insurance Contributions. The government’s Redundancy Payments Service is there to offer a parachute to employees and employers alike when they lose their jobs or businesses.

Can you assist with my claim?

We are not authorised to provide services in relation to redundancy claims. We recommend that directors take independent advice in relation to eligibility and the claims process. It is possible to pursue a claim yourself, however, if this is something you would rather not do yourself, we can recommend an independent and fully regulated third party who can make the claim on your behalf.