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Can a company director make themselves redundant?

Posted on: Friday 4th December, 2020

Can a company director make themselves redundant?

A company director can make themselves redundant in the sense that they can place their insolvent company into liquidation voluntarily, to minimise creditor losses. Doing so means that all jobs are redundant as the company closes down.

Being able to claim redundancy pay as a director depends on whether or not they worked for the company as an employee as well as being a director. So if you’re a limited company director in this situation, you must also prove your status as an employee.

When is a director also an employee?

It’s common for company directors to work under a contract of employment, and this is one factor that determines their status as an employee. If a written contract exists, it’s straightforward to prove their employee status, but oral and implied contracts can also be used as the basis for a claim.

We have extensive experience of making successful claims on behalf of directors, and can help you prove your status as an employee.

To be regarded as an employee, a director must:

  • Work under an employment contract continuously for a minimum of two years
  • Receive a regular salary through PAYE
  • Work for at least 16 hours per week in a role that’s more than advisory

Director redundancy pay – what could you claim?

Director/employees of companies in liquidation may be eligible to claim a range of entitlements in addition to statutory redundancy pay. These could include wage arrears, backdated holiday pay, and unpaid pension contributions.

When calculating your redundancy pay, you’ll need to take into account your age, length of service, and weekly wage. There are caps on these amounts, but statutory redundancy pay up to £30,000 is tax-free.

How claiming director redundancy can help

You’re essentially making yourself redundant as a director when you place your company into voluntary liquidation, as the company closes and you lose your job. Creditors’ Voluntary Liquidation (CVL) attracts professional fees, however, and you may believe that it’s unaffordable given the financial position of the company.

A successful claim for redundancy by yourself and potentially other directors opens up the possibility of being able to fund a CVL, however, and so avoid the rigorous investigations that take place when a company is forcibly liquidated by a creditor.

Alternatively, a redundancy payout could support your personal finances whilst you look for another job or role. Additionally, some directors decide to use the money from a redundancy claim to repay some or all of their company’s debts.

Placing your company into voluntary liquidation – effectively, a director making themselves redundant – clearly isn’t an ideal situation, but when there’s no hope of recovery it does offer some benefits compared with the alternative of waiting to be wound up by a creditor.

It protects you from allegations of wrongful trading and director misconduct and allows you to meet your legal obligations, as by voluntarily entering liquidation you’re minimising creditor losses.

Redundancy Claim UK helps limited company directors to make successful claims for redundancy pay and other statutory entitlements. We have more than 40 years’ experience of insolvency – please get in touch with our expert team for more specialist advice and practical support.

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