Directors Redundancy Calculator

Put simply, no.

Just as an employee would not be able to claim redundancy while still in employment, you as a director are only able to claim redundancy when your company is in the process of going into insolvent liquidation. This is because a redundancy payment is designed to help individuals who have found themselves out of work, not those who actively choose to leave their job.

Due to this, directors cannot claim redundancy in the instance of a solvent liquidation (MVL).  This is seen as actively choosing to put yourself out of work rather than being made redundant.

When considering your right to director redundancy, you need to be aware of how the liquidation process affects your right to claim.

Simply put, a director can only claim redundancy when their insolvent company has entered liquidation. The liquidation process can be started voluntarily by the director when realising the company has no chance of revival, or it can be initiated by a creditor (commonly HMRC) who has petitioned to wind up your company due to unpaid debts.  We are able to quickly, and simply, put your company in to voluntary liquidation by way of a CVL (link to CVL page)

Regardless of the route into liquidation, whether voluntary or the result of creditor action, the insolvent liquidation process itself is key to unlocking the statutory entitlements you are entitled to, including redundancy pay. You should also note that other directors may also qualify for the same entitlements.

Our knowledgeable team can answer any questions you may have.  We can even provide a detailed business review if required, and assist with employee redundancy claims if necessary.

Liquidation and director redundancy are mutually exclusive; you can’t apply for director redundancy unless your company is insolvent and either in liquidation or set to be liquidated.

If an insolvent company enters in to liquidation, either compulsory or voluntarily, then it is often the case that the director will be in line for a redundancy payment. This is conditional on the director being on the payroll and the company having been incorporated for a minimum of two years.

Administration is a slightly different process, however, and the eligibility for claiming director redundancy is not quite as straightforward. This is because when a company enters administration there are two possible outcomes; either the company, or part of the company, will be sold and continue to trade; or should a buyer not be able to be found, or the company is beyond rescue, then a liquidator will be appointed and the company will be closed for good.

In the event of the company being liquidated following an administration procedure, then all employees, including the director will be able to make a claim for redundancy as long as they meet the basic criteria. This is because the insolvent liquidation of a company is viewed as a necessary termination of employment and therefore employees and directors will be able to take compensation in the form of a redundancy pay-out.

Should the company be unable to finance these redundancies then they will instead be made by the Redundancy Payments Service (RPS) through the government’s National Insurance Fund. Any redundancy paid this way will be limited to statutory levels, which may well be lower than what is set out in an individual’s employment contract. After these payments have been made, the RPS then becomes a creditor of the liquidated company.

If the company is viable and we, as the liquidator, feel it has a good chance of being successful in the future, we will look at selling the business, or at least the profitable elements of it. It is likely, in this scenario, that the company is restructured in some way. It is during this process that the existing director will either be made redundant by us as the liquidator or transferred to the new company through a process known as the Transfer of Undertakings (Protection of Employment) or TUPE.

Under these rules all employees, including the directors, must be taken on by the purchasing company and their employment rights protected. However, at this stage the director has the option to resign or to take redundancy if this is offered. If a director resigns at this stage or at any other point, then they are seen as intentionally making themselves unemployed and will fail to qualify for redundancy. However, if the purchasing company offers the existing director redundancy then it is the purchasing company who will need to pay for any redundancy package offered.

Essentially you must be made redundant, whether this is by the liquidator or by your company being insolvent, in order to claim a redundancy payment.

Administration can be a complex process, and your right to claim redundancy will depend not only on the direction your business takes as a result of this process, but also where this leaves you in relation to it.

When a business enters insolvency and has to be liquidated, the company’s employees are automatically made redundant. They become eligible for statutory redundancy and other payments provided they meet certain conditions. The qualifying criteria for employee redundancy also applies to you as a director, as long as you can prove your status as an employee of the company.

If you fulfil the same criteria as your employees, and have worked under a similar arrangement – receiving a salary/wages through the PAYE system rather than being paid solely via dividends, for example – it’s likely that you’ll qualify for redundancy and other statutory entitlements such as unpaid wages and outstanding holiday pay.

Are you entitled to redundancy as a director?

To be considered an employee of the company, you must have worked:

• under a contract of employment – written, oral or implied – for a continuous period of two years
• a minimum of 16 hours per week
• in a practical role, rather than advisory or having only a controlling interest in the company

The process is more straightforward if you hold a written employment contract, but it may be possible to argue a case for your status as employee if your contract is oral or implied.

The calculation for redundancy pay (link to calculator)  takes into account three factors – your age, length of service, and weekly wage, and is subject to statutory limits.

• If you’re under the age of 22: multiply half a week’s wage by the length of service (in full years)
• If you’re aged 22-40: multiply one week’s wage by the length of service
• If you’re aged over 40: it’s one and a half week’s wage multiplied by each full year of service
  Limits have been placed on these figures by the government – length of service is capped at 20 years, weekly wages at £525, and maximum redundancy pay is £15,240.

Making yourself redundant as a director isn’t always as straightforward as when employees make their claim, due to various factors including the dual status you hold within the company. Some claims are rejected because they haven’t been presented correctly, or directors fail to provide sufficient proof that they are, in fact, an employee.

An unambiguous written contract setting out your hours of employment, holiday entitlement, salary, and duties as an employee, plus proof that PAYE is deducted from your salary all help to reinforce your eligibility for redundancy pay.

At Simple Liquidation, as an additional part of the liquidation process, our professional, experienced team can provide you with all the detailed information you need to make your redundancy claim.  Talk to our team today on 0800 246 5895 or email mail@simpleliquidation.co.uk

If you qualify for director’s redundancy, you can use this payment for any purpose you wish. Some people use this to fund the cost of the company liquidation, others might put it towards a future business venture; while other individuals use it to pay down their personal debts, including personal guarantees.

What does it mean for a company to be solvent or insolvent?

A solvent company will have more assets than liabilities and will be able to keep up with its outgoings such as bills, wages, and debt repayments, as and when they fall due. An insolvent company on the other hand will have debts which outweigh the company’s assets and will struggle to pay its liabilities on time.  Once a company is insolvent, it is the legal duty of the director to limit the impact this situation could have on the company’s outstanding creditors.

How does solvency affect my ability to claim directors’ redundancy?

A director can only claim redundancy from his or her company if it is insolvent and is going through aformal liquidation procedure such as a CVL.  This is where an insolvency practice such as Simple Liquidation is appointed to close down the company in an orderly fashion and liquidate its assets for the benefit of outstanding creditors.

If your company is solvent and you want to shut it down to extract the company’s proceeds, this can be done through a Members’ Voluntary Liquidation (MVL) process, but you will not be entitled to claim redundancy for this.

Attesting for a company’s solvency is therefore a vital part in assessing eligibility for redundancy payments.

In order to be eligible you must be registered as an employee of the company, have at least two years’ continuous service, and you must have worked a minimum of 16 hours a week during this time. Depending on your individual circumstances you may also be entitled to holiday pay, notice pay, and unpaid wages on top of your redundancy payment.

If you do qualify for director redundancy your payment will be based on the salary you have been earning in the months leading up to your company’s liquidation, up to a maximum weekly pre-tax amount of £544.

Put simply, for the purposes of claiming director redundancy, it does not matter if you have been paid more or less than minimum wage. It is understood that when a company is struggling under the weight of increasing financial pressures, directors often put money-saving measures in place to try and improve the company’s financials; in a lot of cases the first thing to be cut is the salary the director pays him or herself. Unfortunately this can mean the director is receiving a salary at a lower level than the national minimum wage.

The important thing to remember, however, is that the Redundancy Payments Service (RPS) cannot base a redundancy claim on any amount which is lower than the national minimum wage and therefore this is the figure which will be used in any calculations even if your actual salary falls short of this level.

With this in mind, however, you must have been paying yourself something in order to qualify for director redundancy, and this must have been done through the PAYE system. If you are unsure whether you have been paying yourself through PAYE it is advisable to speak to your accountant who will easily be able to confirm this for you.

The responsibility for making redundancy payments to its employees lies with the company making the redundancies. However, if the business is insolvent, it is unlikely that there will be enough money in the company to make these payments in full. In this instance redundancy payments are made from the National Insurance Fund (NIF) which is the place where all national insurance contributions are held.