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Can a director be made redundant before company liquidation?

When can I claim director redundancy?

You only become eligible for redundancy once you have been dismissed from your job due to it either being made obsolete, because of relocation, company restructuring, or a closing down operation. Simply deciding to leave your position, or voluntarily resigning for any other reason, does not constitute a dismissal which would entitle you to a redundancy payment.

A Person Been Made Redundant

As a company director you are only eligible to claim redundancy once your limited company enters a formal insolvency procedure. Ceasing trading, resigning from your position, or striking off your company are not qualifying processes, and you will therefore be unable to pursue a redundancy payment.

Administration and liquidation

Should your company end up being transferred through a pre-pack administration, after which you resume your position as director, you will not be able to claim. If, however, the company enters administration and the director is made redundant as part of the process then redundancy can be claimed. Following the director being made redundant, the company is then able to be sold.

However, the most common situation in which directors are able to claim redundancy is when they place their company into voluntary liquidation. Payment is typically made following liquidation, although depending on the insolvency practitioner you use, you may be able to use the redundancy money in order to fund the liquidation fees.

What does it mean when a company is liquidated?

When a company is experiencing financial difficulties, it may get to the stage where the business is beyond rescue and is heading towards insolvency. If this is the case, the company may have little alternative but to enter into a formal closure process known as liquidation. This is done though a procedure known as a Creditors’ Voluntary Liquidation, often abbreviated to CVL. During the liquidation, a licensed insolvency practitioner will take control of the company and all of its assets. The assets will then be sold, valued, and the proceeds distributed amongst outstanding creditors. The company will then be closed and any outstanding debts (unless they have been personally guaranteed) will cease to exist. As it is the company and not the director who owes this money, once the company is formally closed, creditors are not allowed to pursue directors personally for repayment of any amount which remains outstanding.

Do I qualify for director redundancy?

As well as your company having gone through, or in the process of going through a formal liquidation, there are several other criteria which must be met, namely:

  • Your company must have been incorporated for a minimum of two years
  • You must be classed as an employee as well as a director
  • You must have taken a regular salary through the PAYE system

The amount you are able to claim is based on your weekly salary, your age, and years’ service with the company. Service is limited to 20 years, and weekly salary capped at £508; these figures are exactly the same as for employees.

If you are considering liquidating your company and would like to know more about your potential entitlement to director redundancy, call our expert team today on 0800 063 9261. Alternatively, you can use our redundancy calculator to discover how much you may be able to claim.

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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