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What you need to know about liquidation and director redundancy

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.

Our knowledgeable team can answer any questions you may have, and can advise on any potential TUPE issues which require careful planning to protect company directors and employees (where applicable). We can even provide a detailed business review if required, and assist with employee redundancy claims if necessary.

"Liquidation and director redundancy are mutually exclusive; you can't apply for director redundancy unless your company is insolvent and either in liquidation or set to be liquidated."

What is insolvent liquidation?

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.

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.

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