Company directors can claim for redundancy
Company directors are probably aware that employees have the right to redundancy payments at their place of service, but most directors do not know that this right also extends to them if their company is liquidated.
It is more common for a director to assume that their best bet is a sale of assets when the time comes to pay the insolvency practitioner for the liquidation.
However, in some cases the director may not even have enough assets to liquidate and cover redundancy claims, and this becomes a challenge.
When faced with this challenge however, it is essential that a director knows that they are qualified for some statutory benefits that may help them out of financial crises or give a form of relief. And, although some eligibility criteria govern these payments, the director may use them in whatever way that they see fit.
These payments can help a director to pay towards the liquidation or, if there is enough left over, begin a new venture after the closure of their old company.
Legally entitled to redundancy
The fact is that a director of a limited company that has been in existence for two years or more is entitled to a redundancy payment if the company is liquidated.
However, most directors still struggle through creditor pressure, potential insolvency, cash flow difficulties, and HMRC debts because they are unaware of these benefits which average about £9,000 in the UK.
It is also possible to claim other statutory payments as a director. These include the holiday pay, notice pay, and unpaid wages, and not so many directors are aware of these payments.
What are the criteria for a director to make a redundancy claim?
A director must be an employee of the company to qualify for a redundancy claim. And although this is the basic qualification, other criteria for making a statutory redundancy payment claim as a director include:
- A minimum of 16 working hours weekly
- To have been on the PAYE scheme
- Having a contract of employment for at least two years; can either can be a written document or implied. It is imperative for the director to have this and not just a controlling interest
- The company should owe you money, this can be the initial investment to the company or more likely PAYE arrears
Where to make claim for redundancy
If they meet the criteria, a director can claim the redundancy payment from the National Insurance Fund.
The redundancy payment is tax-free and the director can request a form online or from the liquidator. The claims are handled by the Redundancy Payments Service (RPS).
Redundancy payment amount to expect
With the confirmation of the director’s status as a company employee, the redundancy payment is dependent on their pay rate, length of service, and age.
The length of service, which is usually a maximum of 20 years, and their weekly wage rate, which is a maximum of £535/week, form the basis for calculating redundancy payments.
The director must have also completed at least two years in service prior to making a statutory redundancy claim.
The director may also be able to claim their holiday pay and backdated salaries, and claim loans that the insolvent company owes them, thereby becoming preferential creditors.
How to claim a redundancy payment
It is essential that directors first meet set down criteria, after which they can apply for a statutory redundancy claim.
An independent firm that specializes in assisting company directors to assess their statutory redundancy status could be the surest and quickest means for a director to ascertain their qualification for a statutory redundancy claim.
The director may also be able to make a maximum of 6 weeks’ holiday pay claim, as well as a maximum of 8 weeks unpaid wages claim.
The payment comes from the National Insurance Fund, which holds National Insurance Contributions that pay for statutory schemes like state pension and redundancy.
It is crucial that any director of a company facing financial troubles or insolvency gets a redundancy status assessment from only the most reputable of independent companies.
This must have independent experts that have a wealth of experience in redundancy assessment, as well as a high success rate for clients.
Need to speak to someone?
If you would like to know more about whether you can make a redundancy claim, or about liquidation or closure of your company, you can speak to one of our advisors for free, and in confidence, about your situation.
Call us on 0800 975 0380 or email us on [email protected]
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