Posted on: Monday 25th September, 2017
The fact that limited company directors can claim redundancy when their company is liquidated is not widely known in the UK. If successful, however, this payment can cover the professional fees needed to undergo insolvent voluntary liquidation, rather than having to wait for a creditor to enforce liquidation.
Voluntary liquidation offers several other benefits when a company is in unmanageable debt. It minimises creditor losses, meets the obligation to place creditor interests first, and reduces the potentially serious ramifications for directors in the form of investigation by the Insolvency Service.
If one or more directors meet the qualifying conditions for redundancy, they may be able to pay the liquidator’s costs and cover some or all of the company’s debt. It’s possible for multiple directors from the same company to make individual claims for redundancy, but in the first instance they must determine whether or not they’re eligible.
Directors of a failing business must have worked continuously for the company for two years under a contract of employment. The existence of this contract is pivotal to a decision on eligibility. If it’s a written contract, the process of proving their status as employees will be more straightforward.
Should the contract be oral or implied, this doesn’t discount a claim, but directors may experience more difficulty in establishing beyond doubt in the eyes of the liquidator that they’re a company employee. Much also depends on other aspects of a director’s role and position within the company, including the number of hours worked per week, and crucially, how they were paid.
A minimum of 16 hours per week is required, in a practical role that isn’t solely advisory or non-executive. Directors must also have received a salary under the PAYE scheme. A final consideration is whether or not they’re owed money by the company. This might be their original investment, for example, or money loaned to the business for growth purposes.
A limited company is a separate entity in law from its directors. Just as members of staff hold contracts of employment that stipulate their duties, contracted hours and wages, directors can also hold the status of employee due to this degree of separation from the business.
The average claim for director redundancy is £12,000. This sum could make a huge difference to your experience of company liquidation and the ensuing investigations by the liquidator.
If you and your co-directors are facing company liquidation, Redundancy Claim can provide professional guidance on the best way forward. We’ll establish whether or not you’re entitled to make a claim, and if so, provide expert help at every stage.