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My company is broke; where does the money come from for redundancy?

You may be aware that employees who have worked for a company for over two years are eligible to claim redundancy should their employment be terminated. You may also be aware that this often applies to directors as well. However, you may be confused how exactly this works. If your company is insolvent and you are consequently forced into liquidation, how can the company then afford to pay you redundancy?

Person with Empty Pockets

If your company is unable to afford to pay you redundancy, don’t worry. Regardless of your company’s ability to pay, if you have been made redundant then you are eligible for a redundancy payment as compensation. Your first step is to ascertain whether the closure of your company will result in you being made redundant, or whether you are actually resigning from your position.

Resignation or redundancy?

Although it may seem logical that a director will be able to claim redundancy from a profitable company which is in a position to cover the associated pay-out, in fact the opposite is true; directors are only eligible to claim redundancy should their company be insolvent, i.e. if it has no money. If a solvent company is closed, director redundancy will not apply. The key difference is that a director of a solvent company will have made the choice to close it and will therefore be seen as effectively resigning, whereas a director of an insolvent company will have no other option than to shut its doors for good due to circumstances out of his or her individual control. This therefore will be viewed as an enforced termination of employment and the director will consequently be able to claim redundancy. Simply put, it is this lack of choice which marks the difference between a director resigning and being made redundant.

Where does the money come from?

So, back to the question – how can my company pay me redundancy if there is no money left in the company’s accounts? Firstly it must be said that if a company is making some or all of its employees redundant, then it is the company’s responsibility first and foremost to cover the associated redundancy pay-outs. However, should the company already be insolvent then this will simply not be possible. In fact, in some cases, having to pay its employees (and directors) redundancy, can be a financial strain too much for a company and can end up meaning a once solvent company finds itself tipping over into insolvency.

Quite simply therefore, if a company cannot afford to pay redundancy to its employees, then the Redundancy Payments Service (RPS) will step in to ensure people get paid what they are owed. This money is paid out from the National Insurance Fund. This is operated by the government and, as the name suggests, holds national insurance contributions collected from workers across the country.

What may you be eligible for?

Should you qualify, you are able to claim for more than just redundancy pay. You will also be eligible for other statutory payments including holiday pay, notice pay, and unpaid wages. The exact amount you will receive for each element depends on your age, length of service, and level of salary, amongst other factors. Here at Redundancy Claims UK, our experienced advisors will quickly be able to tell you whether you qualify, and more importantly, let you know how much money you may be in line to receive. Whether you have started the liquidation process or are still considering your options, call us today on 0800 063 9261 to see how director redundancy could help you.

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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