Am I entitled to redundancy when closing a company?

Author
Shaun Barton | Company Closure Expert

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Am I entitled to redundancy when closing a company?

Director redundancy may be available when an insolvent company is liquidated via the formal process called Creditors’ Voluntary Liquidation (CVL). The fact that directors can claim redundancy pay in the same way as employees isn’t widely known.

If you meet the eligibility criteria, however, you could be entitled to a redundancy payout and other entitlements such as holiday pay and unpaid wages. Should the business be closed via voluntary strike-off, also called voluntary dissolution, you won’t be able to claim as this is an informal process.

Redundancy pay to cover the cost of liquidation

Director redundancy payments can be substantial and may be used to pay for the liquidation process if necessary, and/or repay some of the company’s debts. Being able to use the money to pay for a Creditors’ Voluntary Liquidation (CVL) is important as the alternative is waiting for a creditor to forcibly wind up your insolvent business.

This would lead to scrutiny from the Insolvency Service as to why the company failed, and a greater potential for sanctions being made against you if a breach of director duty is uncovered during the investigation.

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What are the eligibility criteria for director redundancy?

The criteria for claiming director redundancy pay is the same as for employees of the business. Indeed, many directors work as employees of their company as well as holding office as directors.

To be eligible to make a claim you’ll need to have:

Worked under a contract of employment, whether written, oral, or implied, for at least two years
Worked for a minimum of 16 hours per week in a role that’s not solely advisory
Taken a salary under PAYE
Been owed money by the company – this might be the amount you’ve invested in the business, for example

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How is director redundancy calculated and paid?

If you’re entitled to claim director redundancy pay your payment will be based on your age, length of service, and gross weekly wage. Length of service is capped at 20 years and your gross weekly pay is currently capped at £643 (from 6^th April 2023).

The calculation is as follows:

Aged under 22: half a week’s pay for each full year worked
Aged 22-40: one week’s pay for each full year worked
Aged 41 or older: one and a half week’s pay for each full year worked

Statutory redundancy pay is taken from the National Insurance Fund (NIF) with amounts up to £30,000 being free of tax and National Insurance. If you claim other entitlements, such as holiday pay or arrears of wages, these will be subject to tax and NI.

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How to claim your director redundancy pay

You can request a redundancy claim form online or from the liquidator you have appointed and you have 12 months from the date your company enters liquidation to make your claim. Applications are sent to the Redundancy Payments Service (RPS).

Payments are generally made within six weeks of claiming, so you should have the money available to pay for the CVL, repay some of the business’s debts, or support your own personal financial situation if required.

Company Closure can assess your eligibility for redundancy pay and provide professional guidance on entering Creditors’ Voluntary Liquidation. Our team has extensive experience in helping company directors to close down their businesses appropriately and advising on the implications of different closure methods.

Please get in touch to arrange a free, same-day consultation – we operate a broad network of offices around the country.

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