Can Directors Get Redundancy Pay in an Insolvent Liquidation?
Many directors understand that employees can expect a redundancy payout from the government in the event of an insolvent liquidation. Most, however, are unaware that director redundancy pay is also available for claim.
As employees of the company, directors enjoy the same statutory entitlements as their staff; alongside redundancy pay, you may also be entitled to claim unpaid notice pay, unpaid holiday pay, and unpaid wages.
Directors receive an average payout of £12,000, which can be a major lifeline when facing the uncertainties of company insolvency. These entitlements can provide some much-needed income and cover the costs of the company’s closure.
In this guide, we’ll be looking at what qualifies you for director redundancy pay, how much you can expect to receive and how you can apply.
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Do You Qualify for Director Redundancy Pay?
In order to qualify for director redundancy pay, you’ll need to prove that you’re an employee of the company.
There are a few criteria to do this:
- You must have been an active employee for the past 2 years
- You must have an employment contract – whether written, oral, or implied – with the company
- You need to have worked at least 16 hours a week
If you meet these requirements, you’ll be able to qualify for directors’ redundancy pay. If you worked in the company in an active role – beyond a mere advisory position – chances are, you’ll be able to claim a number of valuable entitlements from the government.
Remember that if the company owes you money (such as unpaid PAYE, notice pay, or holiday pay), you may also be entitled to other government packages.
What Proof Do the Government Need for Directors' Redundancy Pay?
As a director, you’ll then be sent a special questionnaire asking you more about your situation. It will include a list of evidence that the Redundancy Payments Service would like you to provide.
This may include:
- Information about the company’s directors and shareholders
- The last 12 months’ bank statements
- Your last 3 months’ wage slips
- P60 forms
- A comparison of your contracted hours to the work undertaken
- Proof you were paid the national minimum wage
- Holiday pay arrangements
- Sick pay arrangements
- Workplace pension arrangements
The Insolvency Service will use this information to determine if you were actually a legitimate employee of the company or not. For example, they might want copies of bank statements to prove the regularity of payments from the company to yourself.
Other information – such as the company’s holiday pay arrangements – will be used to figure out how much money you’re entitled to.
How Much Director's Redundancy Pay Can I Claim?
Just like employee redundancy packages, there isn’t a specific set amount up for grabs. Instead, each director redundancy package varies on a case-by-case basis.
The amount you’ll receive depends on your age, salary and length of service.
You’ll be paid:
- Half a week’s wage for every year served under the age of 22
- A week’s wage for every year served over the age of 22
- A week and a half’s wage for every year served over the age of 41
This is capped at 20 years of service.
The amount you receive each week is based on the average income you receive from the company. This is capped at a £544 a week maximum.
The total amount you receive in director’s redundancy pay is currently £16,320.
What Other Entitlements Can Directors Claim?
Directors are entitled to more than just redundancy pay. They can claim a variety of statutory entitlements from the Insolvency Service so long as they meet the given requirements.
Unpaid Notice Pay
As an employee, you’re entitled to receive notice pay upon your dismissal. In the event of an insolvency, the company typically cannot afford to provide this notice pay. Fortunately, you can claim it from the government instead.
It is much easier to qualify for notice pay than for other entitlements. You only need to prove that you’ve been an employee for at least one month.
The amount you’re entitled to varies depending on how long you’ve been a registered employee of the company:
- One week’s pay if employed for less than 2 years
- One additional week’s pay for every year worked over 2 years
- 12 week’s pay if employed for 12 years or more
The amount you receive for a week’s pay is calculated based on the average amount the company pays you. This is capped at £643 per week, meaning you can claim a maximum of £7716 in unpaid notice pay.
Remember that you can only claim unpaid notice pay once you’ve claimed redundancy from the government. You must apply for redundancy from the government even if you’re not entitled to any redundancy. You then make a separate application to the National Insurance Fund.
Unpaid Holiday Pay
If you have unused holiday hours, you can claim them from the Insolvency Service alongside your redundancy package.
You can claim up to 6 weeks of unpaid holiday pay
The maximum amount you can claim per week of holiday is £544. This means that the maximum amount of unpaid holiday pay you can claim is capped at £3264.
Unpaid Wages
If you’ve not been able to collect the wages you’re due, you can claim them back through the Insolvency Service alongside your redundancy package.
You can claim up to 8 weeks of unpaid wages.
The maximum you can claim per week is £544, meaning that the maximum you can claim in unpaid wages is £4352.
However, it should be noted that this is a somewhat tricky area. The Redundancy Payments Service has begun to scrutinise director redundancy pay applications, dismissing cases based on technicalities. One of these technicalities is the requirement that directors – as employees of the company – have been paid at least the minimum wage.
Directors who have foregone paying themselves to relieve the pressure on their company’s balance sheet run the risk of having their applications dismissed. If you’ve not been paying yourself a proper wage, you should seek insolvency guidance right away.
How Do I Apply for Director's Redundancy Pay?
You should start your application by discussing your situation with your liquidator. Our team will advise you as to whether you’re eligible and how you can apply.
We’ll provide you with a selection of forms to complete, which we’ll advise you on how to complete; when they’re finished, we’ll review them to ensure that there are no issues before submitting them to the Redundancy Payments Service. You’ll also need to provide your case reference number and your National Insurance number.
Once you have provided the Redundancy Payments Service with any additional documentation that they have requested, they will process your claim and make a payment.
You can expect to receive payment within 14 days of submitting your application.
Speak to an Expert
If your business is struggling with unaffordable debt, speak to an insolvency practitioner as soon as possible. Early action ensures you fulfil your legal duties and keeps your options open.
Our team will help you throughout the liquidation process, explaining whether you’re eligible for redundancy or other benefits to reduce cost and stress.
Get in touch to book a free consultation today.
FAQs
Yes – but only in select cases.
Director’s redundancy pay under £30,000 is exempt from taxation. The average amount of redundancy pay a director receives is £12,000, meaning that it’s unlikely what you receive will be subject to tax.
Amounts over £30,000 are subject to regular income tax. You also must pay National Insurance on any amounts over the lower earnings limit.
Yes, so long as you meet the requirements outlined for regular directors.
If you worked less than 16 hours a week or for fewer than 2 years, you won’t be able to claim redundancy.
You must make the claim within 6 months of the date you were dismissed. In some cases, you make a late claim within 12 months of the dismissal, but this is rare.
