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Can directors be paid redundancy when a limited company ceases to trade?

Following the closure of a company, directors are eligible to claim redundancy just as their employees would, however, in order to qualify there are certain criteria which must be met. Firstly, the manner in which the company is closed is a vital qualifying point. Companies close for many different reasons; some businesses have simply run their course, for some directors want to extract their profits and do away with the company, while others will be forced to close due to mounting debts and other financial concerns. It is only directors of those businesses which are insolvent who are entitled to claim redundancy

Claiming redundancy money

Ceasing trade vs liquidation

If your company is experiencing financial difficulties, and is ultimately heading towards insolvency, then it may well come to the stage that you decide to stop trading. Should your company be beyond rescue, then this is the right thing to do. One of your obligations as a director of a limited company is that upon becoming aware of your company being insolvent you must prioritise your creditors’ interests above those of yourself and your shareholders. This means not doing anything which could worsen their position, such as taking on more debt, or depleting the company’s assets. Therefore in many cases, ceasing trade is the best way of ensuring this is this happens.

However, simply stopping trading does not stop your company from existing, nor does it mean you can claim director redundancy. In order to be eligible for director redundancy and to ensure your business is permanently closed, you will need to place your company into voluntary liquidation. This is done through a process known as a Creditors’ Voluntary Liquidation (CVL) which must be handled by a licensed insolvency practitioner. It is only by formally liquidating your company that you become entitled to claim a redundancy payment.

How much director redundancy may I be able to claim?

The amount of redundancy you may be entitled to claim depends on a variety of factors including your length of service, your age at the time of redundancy, and your salary. You must have a minimum of two years’ service in order to qualify, with the maximum number of years capped at 20. If you have more than 20 years’ service you will still be able to claim redundancy, however the amount you will be entitled to will be capped at this level.

In addition to a redundancy payment, it is likely that you will also be able to claim other statutory entitlements on top of this amount. These entitlements include notice pay, unpaid holidays, and unpaid wages. While redundancy is paid tax-free, these other elements which make up your full claim will be subject to income tax at your usual rate.

How Redundancy Claims UK can help

If you are considering closing your company, speak to Redundancy Claims UK today to see how much you may be entitled to claim. Knowing this information may help you make the right decision when it comes to closing your business or ceasing to trade. Our expert team will be able to ascertain whether you qualify, and will also be able to tell you how much your claim may be worth. Use our redundancy calculator or call our team today on 0800 063 9261.

Many directors don't consider themselves to meet the criteria and don't claim when they have a legitimate right to.

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