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Directors and redundancy payments from company insolvency
Star Harford • 15 March 2022
Company directors may be entitled to redundancy payments when liquidating their company.
If you are considering winding down your company with financial problems that has been trading for two years or longer, you may be entitled to a directors redundancy payment. This payment comes from the National Insurance fund. You may also be able to claim other available statutory payments such as holiday pay, owed wages and notice.
There are certain criteria that make a company director eligible for redundancy payments. To qualify you must:
- Be an employee of the company as well as the director, meaning you must be involved in the practical running of your company.
- Have an employment contract which is written, oral or implied. A written contract would be better to be able to prove you are an employee.
- Have been employed by your company for two years or longer.
- Have put 16 hours or more work into your company each week.
How much a company director can claim in redundancy payment during company liquidation can vary. The amount you can claim depends on many factors including how long you have worked for the company, how old you are and how much wage you normally draw from your company. These factors are used to determine how much you will receive. If you are aged between 18 and 21, you can claim redundancy pay which is half of your weekly pay for the length of time that you have worked for your company. There is a maximum wage cap of £538 per week and a maximum number of years that you can claim for of 20, though for people in this age group the time cap won't be relevant.
If you are aged between 22 and 40, you can claim redundancy pay based on a whole week's pay for every year that you have worked for your company. This is again with a 20 year cap and this time the maximum weekly pay you can claim is £508.
For directors who are aged 41 and older the amount available to claim is a little higher at one and a half weeks pay for every year they have worked for their company. This is again based on £508 per week maximum pay and 20 years maximum time working for the company.
As well as claiming for a redundancy payment, a director of a company can make a claim for up to eight weeks of arrears of wages, pay in lieu of notice and up to six weeks of accrued holiday pay that they would have been entitled to. As a director of a company being liquidated, you would not need to pay any tax on your redundancy pay but you would still need to make tax and national insurance contributions on any holiday pay or unpaid wages that you claimed. Pay in lieu of notice can be claimed at a rate of one week’s notice for each year that you have worked for your company. This is capped at 12 years.
If you want to try and claim for directors redundancy pay then the first thing you need to do is talk to an insolvency advisor to see if you meet the criteria for claiming and if so, how much you would be entitled to. you should contact your company’s insolvency advisor to determine whether you, as a director, fulfil the criteria for directors’ redundancy pay and, if so, how much money you are entitled to. You would then need to apply to the National Insurance Fund through your company liquidator when liquidating your company or within six months of company liquidation. In a few cases this can be extended to a year.
If you would like to talk to someone today for free advice about company liquidation then you can fill in our online form, call us or whatsapp us. An advisor will get back to you as soon as they are free to discuss your circumstances and what options may be available to you.
