What you need to know about liquidation and redundancy payments as a director
An important aspect to be aware of when considering your right to a director redundancy claim centres around the liquidation process.
Simply put, a director can only claim redundancy when their insolvent company has entered into liquidation. The liquidation process can be initiated voluntarily by the director when realising the company has no chance of revival, or it can be kick-started by a creditor (commonly HMRC) who has petitioned to wind-up your company due to unpaid debts.
Regardless of the route into liquidation, whether voluntary or the result of creditor action, the actual insolvent liquidation process itself is key to unlocking the statutory entitlements you are entitled to such as redundancy pay. You should also note that other directors may qualify for the same entitlements.
What is insolvent liquidation?
Broadly speaking there are two main insolvent liquidation procedures: Compulsory Liquidation, and Creditors’ Voluntary Liquidation (CVL).
A compulsory liquidation occurs when one or more of your creditors petition the court to force your company into liquidation so that all of its assets can be sold and the proceeds used to repay outstanding debts. The end result of compulsory liquidation will be the dissolution of your business – the company will cease to exist and will be struck off the register within 3 months of the conclusion of the liquidation.
As the name suggests, a Creditors’ Voluntary Liquidation, is when the liquidation process is started voluntarily by the directors of an insolvent company. This process is started usually due to increasing creditor pressures when the director has nowhere left to turn. The insolvent company would appoint an insolvency practitioner who would then call a meeting of the company’s creditors and facilitates the process of selling the company’s assets to repay the creditors.
Can I claim redundancy if my company isn’t in, or isn’t facing liquidation?
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 liquidation. This is because a redundancy payment is designed to help individuals who have found themselves out of work rather than for those who are just contemplating the possibility of this happening.
It should also be noted that directors cannot claim redundancy in the instance of a solvent liquidation as this is seen as actively choosing to put yourself out of work.
When can a claim be made for director redundancy?
While it is possible to make a claim for redundancy both pre- and post-liquidation, the timescales for making your claim is strict. You must start the process either pre-liquidation or within 12 months of your company entering into liquidation. Despite this, it is advised that pre-liquidation is the best time to get the ball rolling on your claim. Many find the prospect of receiving a redundancy payment helps make the decision to liquidate the company easier. Waiting until after your company is liquidated could prevent you claiming your statutory entitlement.