How Does Redundancy Pay Work For Company Directors?

November 14, 2022 / CVL

If you are a director of a company that is being placed into Creditors’ Voluntary Liquidation (CVL), you might be entitled to claim redundancy payments from the Insolvency Service.

The site provides some guidance on this topic here.

To be eligible for redundancy payments as a director, you will need to confirm your status as an employee of the company. The Insolvency Service will consider your claim if you can show that you had a contract of employment (or something to reflect your employment status) and you received payments under a PAYE scheme.

The information you will need to supply regarding your directorship include:

  • whether you were also a shareholder in the company
  • how much you earned from your employment over the last 3 tax years
  • whether you earned less than minimum wage over the last 3 years.

Once the Insolvency Service has received your completed application, they are likely to request some supporting documentary evidence from you, including:

  • your wage slips
  • any dividends you have received
  • company accounts and bank statements
  • your P60.

Redundancy for the company’s employees

As a director of company going through a CVL, you will need to understand your employees’ rights as they relate to this insolvency process.

Click here to see one of our articles in which we show how redundancy fits into the insolvency process, your employees’ rights and your obligations to them.

Calculate your statutory redundancy pay

To calculate your statutory redundancy pay, click on the link here.

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How will I be entitled to directors’ redundancy pay?

If your insolvent company has been trading for more than two years and you choose to liquidate it, you could be entitled to redundancy pay.

Perhaps the company has been suffering with cash flow problems for a while, and now a Creditors Voluntary Liquidation (CVL) is the best solution for you. If so, you will need to prove your status as an employee of the company in order to be able to claim for redundancy and a number of other statutory payments, including unpaid wages, holiday pay and notice pay.

Also Read: Voluntary Liquidation & Redundancy

Proving your status and making a claim

When it comes to proving that you’ve been operating as an employee of the company, you’ll be asked to complete a form provided by the Insolvency Service.

This form will ask you to provide certain details to make sure you can qualify for redundancy pay, including:

  • Whether a written, oral or implied contract of employment was in place.
  • If your working hours came to at least 16 hours per week.
  • Details of your day-to-day responsibilities.
  • If any money being claimed is owed by the insolvent company.

Any claims will usually need to be made within 6 months of the company’s liquidation, although certain circumstances can see this extended up to 12 months. Claims are made through the Redundancy Payments Service, part of the Insolvency Service.

The amount that can be claimed for director redundancy will vary depending on the particulars of the situation.

What exactly can I claim for?

Along with director redundancy pay, you can also claim for a number of other statutory payments, if you qualify.

Having proven that you were an employee of the company, the amount you’re entitled to will depend on how long you’ve worked for the company, your age and your rate of pay. For example:

  • Under 22 years old – you’re entitled to a week’s pay for every year of service.
  • Between 22 & 40 years old – you’re entitled to one week’s pay for every year of service.
  • Over 41 years old – you’re entitled to one and a half week’s pay for every year of service.

If you’re a director who has been made redundant, you can receive up to a maximum of £489 per week, capped at £14,670 (for 20 years of service). Remember, to be eligible, you must have completed a minimum of two years’ service.

You’ll also be able to claim for up to eight weeks of unpaid wages, and up to six weeks of holiday pay, for any holiday days that haven’t been used.

Want to know more about redundancy pay for directors?

Are you a director wanting to know if you’re eligible for statutory redundancy pay? Are you considering a Creditors’ Voluntary Liquidation for your struggling limited company?

If so, our experts at Clarke Bell are here to help you – with our free, no-obligation advice.

We have more than 28 years of experience in helping companies dealing with their debt problems with a CVL. We can do the same for you…including helping you with any redundancy payments.