The answer to the question of whether you will be entitled to director redundancy payments is that it depends on numerous factors. At Salient Insolvency, we are experts in directors’ redundancies and will advise you of the best options available to you so that the possibility of claiming a redundancy is maximised. Typically, the earlier we get involved with a company that is in financial difficulties, the more options there are. This helps to make claiming a director’s redundancy more likely. That said, even when the financial situation has developed and there is no hope of saving the business, redundancies can still be viable. Read on to find out what you need to know.
What Is a Director's Redundancy?
A director’s redundancy is a financial settlement that comes about after a business enters an insolvent liquidation process, such as a CVL, for example. Like employees’ redundancies, payments are typically made in a lump sum in their final salary along with any other statutory entitlements that may be relevant. In numerous limited liability companies, directors are often classed as employees as well as being directors of the firm. If so, then they share in the employment rights under the law that protect employees when businesses fail. That said, not all directors can claim to have been made redundant because the business they ran went under.
Who Is Eligible for Director's Redundancy?
Firstly, you have to be a director of a business in order for a director’s redundancy to apply. This might sound obvious but what it really means is that if you are a sole trader or a partner in a business – as opposed to being listed on the register of directors, a document that is usually kept at the company’s registered office address – you won’t be able to make such a claim. Other options may be available to you under such circumstances, however, for which we can provide professional advice.
Nevertheless, even if you are a registered director of a limited company, it may still be impossible to claim redundancy. To begin with, directors who only took dividend payments – not a salary – will not be entitled to such a claim. Just like ordinary employees, directors who have not been on the payroll for at least two years will also not be entitled to take a redundancy package. There again, if you – or the other directors – chose to dissolve the business instead of liquidating it, then it is highly unlikely that you will be able to claim any redundancy pay. Finally, for businesses that are solvent, directors’ redundancies may not be possible. Of course, if a limited company restructures in some way such that a job role no longer exists, solvent businesses can make employees redundant. When directors wind up a solvent company, however, different rules tend to apply.
Please note that we can offer you specialist advice tailored to your particular circumstances if you find yourself in any of these situations as a company director.