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Director Redundancy

Director Redundancy

What are director redundancy payments?

Director redundancy payments are a type of compensation paid to directors who have been made redundant from their jobs. This payment is designed to provide financial assistance to directors who have lost their jobs due to no fault of their own. Redundancy occurs when an employer needs to reduce the number of employees due to business needs or economic conditions.

You could be eligible to claim redundancy if you are an employee or a business director. 

If you seek to claim statutory redundancy pay, payments are fixed by the law. However, if you are entitled to contractual statutory pay, this amount will vary per company. Details of this amount will be located in your employment contract. All employees should hold a contract of employment according to law.

Can you claim director redundancy pay?

Company directors are entitled to redundancy, even though many assume they are not. 

Directors of insolvent companies often under-claim what they are entitled to with regards to director redundancy and other statutory payments.

We can help you to claim director redundancy pay if you’re looking to close down your company. 

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How would a director know if they were eligible or not?

Several criteria must be fulfilled for a director to be eligible for director redundancy payments. These include:

▪️ The director must have a contract of employment.

▪️ The director must be working 16 hours a week or more for the company.

▪️ The director should assist with the day-to-day running of the business and not just in an advisory role. 

▪️ The company must be insolvent.

It is worth noting, that even if you do meet these criteria, you aren’t guaranteed to receive director redundancy pay.

How do you claim director redundancy?

You must make claims for director redundancy through the Redundancy Payments Service (RPS). You will be paid with money from the National Insurance Fund if you are eligible for redundancy. 

As part of a liquidation an Insolvency Practitioner will normally try to claim director redundancy payments on your behalf.

Director redundancy calculator

If you want to claim director redundancy but you’re unsure how much you might receive then try our useful calculator below. The director redundancy calculator will give you a rough estimate of the amount you may get.

The amount you may receive in director redundancy payments is based on a few factors such as your age, length of service and also your gross weekly pay.

Please be aware that not all director redundancy claims are successful.

Director redundancy and liquidation

Director redundancy can only be claimed if a company enters a liquidation process. So, it’s important to understand these processes. 

Generally, there are two main types of insolvent liquidation procedures. The first is Compulsory Liquidation and the second is a Creditors’ Voluntary Liquidation (CVL).

A compulsory liquidation happens when a creditor, or more than one creditor, petitions to the court for your company to be forced into liquidation. This is normally instigated when a creditor puts together a winding-up petition (WUP) against your business. 

On the other hand, a CVL is when the liquidation process is voluntarily started by directors within that insolvent company. They usually enter this process because of intense pressure from creditors, leaving directors concerned with nowhere else to go.

An insolvent company would hire an insolvency practitioner and they would take control of the whole process – talking to creditors and facilitating the process of selling assets to repay creditors. 

Can I claim redundancy if my company isn’t in, or isn’t facing liquidation?

You cannot claim redundancy if your company is not facing liquidation. 

Employees would not be able to claim redundancy while in employment so, with that in mind, a director can only claim redundancy when their company is in the process of going insolvent. Redundancy is designed to help those who have found themselves out of a job as opposed to helping those who simply want to quit their job. 

Therefore, directors cannot seek redundancy in a solvent liquidation as this is seen as putting themselves out of work. There is a choice involved. Redundancy is to help those who lose their job without a say in the matter. 

Contact us

If you are unsure whether you’ll be eligible for director redundancy, don’t hesitate to contact us. We can tell you how much you would be likely to receive from a director redundancy payment.

Call one of our compassionate experts at 0800 088 2142 or email us at info@businesshelpline.uk

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    Director Redundancy FAQs

    How much will you make when claiming Director Redundancy?

    The most you can receive for redundancy and other statutory entitlements is:

    ▪️ Redundancy pay – £16.140 capped at 20 weeks

    ▪️ Notice pay – £6,456 capped at 12 weeks

    ▪️ Unpaid holidays – £3,228 capped at 6 weeks

    ▪️ Unpaid wages – £4,304 capped at 8 weeks

    ▪️ Payments are limited to £544.00 per week

    How long does the process usually take from claim to payment?

    A director should receive payments within 4-6 weeks, after the creditors’ meeting, so long as you have filled in and returned the relevant paperwork. 

    How long does it take to make a liquidation claim after redundancy?

    You should be making a claim within 6 months of the company entering liquidation and ceasing trading. Some circumstances could lead to that time frame extending to 12 months but the process, in this case, is a little bit trickier. 

    What can stop a redundancy from going through?

    There are a number of reasons why a claim may not work. Popular ones are that the company has been incorporated for less than two years, you leave the company before it has gone through the liquidation process, or your employment has been transferred using TUPE regulation. 

    What can you claim for with redundancy?

    What you are eligible for with redundancy comes down to several factors:

    ▪️ How long you have been in the role

    ▪️ Your age at the time you have stopped trading

    ▪️ Your current salary

    With redundancy, salary is capped at £544 per-week. 

    £16,140 is the overall maximum pay amount of redundancy pay that you can get. This remains constant, even if your actual earnings are higher or your length of service is longer than is required. 

    According to age, this is what you should be entitled to receive: 

        Under 22 – Half a week’s pay for each year of service

    22 to 40 – A week’s pay for each year of service

    Over 40 – A week and a half’s pay for each year of service

    Employer notice

    Your employee has to give you a minimum of one weeks’ notice for every year you have worked with them when you are made redundant. This goes up to a maximum of 12 weeks’ notice, worth £6,456. 

    Unpaid wages – Up to 8 weeks 

    Unpaid holidays – Up to 6 weeks holiday pay

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