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If directors voluntarily liquidate their company can they claim redundancy?

Quite simply, if you voluntarily close your company due to mounting financial worries, you are likely to qualify for director redundancy, providing you go about this in the correct way.

Two people handing money over

So, what does voluntary liquidation mean?

There are two main ways of closing a company; firstly by applying to have it struck off or dissolved, or alternatively you can place your company into a formal liquidation procedure known as a Creditors’ Voluntary Liquidation – or CVL.

While striking off your company is substantially cheaper than liquidation, there are some significant downsides to choosing this option. Firstly, the striking off process is aimed at solvent companies – i.e. those that do not owe any money. When an insolvent company attempts to strike off, any of its outstanding creditors or other interested parties has the right to contest the application and prevent the company from being dissolved. Furthermore, even if the company is dissolved, creditors can petition for the company to be reinstated to the Companies House register at any point in the future. Once a company is reinstated, creditors can begin to chase the money they are owed.

Another negative to striking off is that the director will lose their right to claim director redundancy. However, should the company be liquidated by a licensed insolvency practitioner, not only will the company be closed in an effective, efficient, and final way, but it also opens the door for the director to claim a redundancy pay-out.

What is director redundancy?

Although redundancy entitlement for staff is well known, when it comes to director redundancy, many people are still in the dark. However, director redundancy works in exactly the same way as it does for members of staff. This is because, in the vast majority of cases, directors are also classed as employees of the company. Due to this, when it comes to the company being liquidated, directors are seen as being made redundant just as their employees are.

The amount directors are eligible to claim is in line with the payments offered to employees, with this amount being similarly calculated based on age, salary, and length of service. Currently, service is capped at 20 years, with the maximum weekly salary having an upper limit of £508.

Do I qualify for director redundancy if I voluntarily liquidate my company?

You will only be able to claim director redundancy if your company is placed into a formal liquidation procedure such as a CVL which must be conducted by a licensed insolvency practitioner. As long as this is done and you have been working for your company for a minimum of two years while taking a salary through PAYE, it is extremely likely you will be able to make a successful claim. If you are unsure how long you have been on the payroll, or whether your salary is paid through the PAYE system, your accountant should be able to quickly clarify these details for you.

As well as claiming for redundancy, Redundancy Claims UK can also help you access your other statutory entitlements such as notice pay, unpaid wages, and holiday pay. Although these additional entitlements are subject to tax at your usual rate, they can still significantly increase the total value of your claim.

How Redundancy Claims UK can help

If you are considering voluntarily liquidating your company and would like to find out more regarding your eligibility to claim redundancy pay, call Redundancy Claims UK today. Our experienced team can expertly assess your claim and let you know how much your redundancy payment may be. To discover how much you may be entitled to, use our redundancy calculator, or call us 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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