When a business enters into liquidation, the responsibilities of its directors can often become overwhelming. One of the most important concerns is ensuring they can access redundancy pay, particularly if they’ve been made redundant due to the company’s closure. Insolvency practitioners (IPs) play a key role in this process, guiding directors through the complexities of redundancy claims and making sure they receive their entitlements. In this blog, we explore how insolvency practitioners help directors claim redundancy pay and the steps involved.
What is redundancy pay?
Redundancy pay is a financial entitlement that employees, including directors, are entitled to receive when their position is made redundant, usually due to the business ceasing operations or reducing the workforce. Redundancy pay is calculated based on factors like the employee’s length of service, age, and weekly earnings.
For directors, the situation can be slightly more complicated. Unlike regular employees, directors are often both shareholders and employees of the business. This dual role can sometimes make it unclear whether they’re entitled to redundancy pay, particularly in cases where they were involved in the company’s day-to-day running.
Can directors claim redundancy?
Yes, directors can claim redundancy pay, but they must meet certain criteria. If a director has an employment contract with the company and is made redundant as part of the liquidation process, they may be entitled to the same redundancy benefits as other employees. However, there are specific factors that determine whether a director qualifies for redundancy pay:
- Employment status: Directors must be employees rather than just office holders. This is often the key hurdle. If a director has a formal employment contract and works for the company under the same conditions as other employees, they may be entitled to redundancy pay.
- Length of service: Similar to regular employees, directors must have been employed for at least two years to be eligible for redundancy pay.
- Role in the business: If the director has played an active role in the daily running of the company, as opposed to being a shareholder or a non-executive director, their entitlement to redundancy pay is more likely to be recognised.
How can insolvency practitioners help directors claim redundancy?
Insolvency practitioners (IPs) are experienced professionals who manage the liquidation process. One of their key roles is to support directors and employees through the process, including supporting redundancy claims. Here are some ways insolvency practitioners help directors claim redundancy:
1. Clarifying eligibility
The first step in claiming redundancy is determining eligibility. Insolvency practitioners will assess the director’s employment status to confirm whether they qualify for redundancy pay. This involves reviewing their employment contract, the company’s financial records, and their role within the business.
If a director is deemed an employee, an insolvency practitioner can advise on the redundancy claim process, making sure the director understands their entitlements and the necessary steps.
2. Filing the redundancy claim
Once eligibility has been confirmed, the insolvency practitioner will help file the redundancy claim with the government Redundancy Payments Service (RPS). This government service is responsible for making redundancy payments to employees when the employer is insolvent and unable to pay.
An IP will handle the paperwork, ensuring all the necessary information is submitted correctly and on time. That includes providing details of the director’s employment history, salary, and redundancy pay calculations.
3. Maximising redundancy pay entitlements
An experienced insolvency practitioner can help directors claim the maximum redundancy payment entitlement. Redundancy pay is calculated based on the director’s age, length of service, and weekly earnings. An IP can make sure that the correct figures are used to maximise their payout.
Furthermore, insolvency practitioners can help directors understand other potential claims they may have, such as unpaid wages, holiday pay, or unpaid bonuses, all of which can be claimed during liquidation.
4. Navigating Legal Complexities
Insolvency can be a complicated process, and directors often need guidance on various legal issues. Insolvency practitioners are highly skilled in dealing with the legal issues surrounding redundancy claims, helping directors understand their rights and the process. They can also explain the potential tax implications and advise on the most tax-efficient approach to redundancy claims.
5. Providing emotional and professional support
The liquidation process can be stressful, particularly for directors who have invested time and effort into the business. Insolvency practitioners not only provide professional guidance but also emotional support during this challenging time. They act as a neutral party, making sure that directors feel confident and informed about the steps ahead.
What is the role of the Redundancy Payments Service (RPS)?
Insolvency practitioners work with the Redundancy Payments Service (RPS) to process redundancy claims when the employer is insolvent. After confirming the director’s eligibility, the IP submits the claim to the RPS, which assesses and, if approved, pays the redundancy directly to the director. If the director is initially ineligible, the IP can appeal or provide more evidence to support the claim.
When should directors claim redundancy?
Directors should submit their redundancy claim promptly after liquidation, as there are strict time limits, typically within six months. Acting quickly helps avoid delays and speeds up payment. Insolvency practitioners can guide directors through the correct timeline for filing claims.
Helping directors with redundancy claims
Insolvency practitioners play a vital role in helping directors claim redundancy. From determining eligibility to helping with the claims process, IPs ensure that directors receive the redundancy pay they’re entitled to in a timely and efficient manner. Given the complexities of redundancy claims, especially for directors, it’s essential to have the support of a qualified insolvency practitioner who can handle the legal and financial challenges of the process.
Contact us for expert advice
Our team can advise on the best insolvency solution for your individual needs. Our qualified, knowledgeable Insolvency Practitioners, authorised by the Institute of Chartered Accountants in England and Wales, can give free, impartial advice to ensure you liquidate your business most cost-effectively. Contact us on the form below, via our live chat, email mail@simpleliquidation.co.uk, or please call 0800 246 5895, and we’ll be happy to help.
