In the event that the company’s director and their subsequent business has reached the point of insolvency, it is generally common practice for said business to undergo asset liquidation wherein the business’s assets are converted to more liquid forms of value, such as cash or similar financial implements.
A problem occurs when the company’s assets, even after liquidation, are still not valuable enough to cover the debts the company may owe, and as such other avenues may be taken by the company and its director, one of which is that of claiming a redundancy payment.
Director’s redundancy is primarily claimed for this very purpose – as redundancy payments are not only reserved for a company’s employees but also for its director as well, though this comes with certain caveats and requirements that must be fulfilled in order for the director to claim it.
What is Director’s Redundancy?
Director’s redundancy is a redundancy payment that is claimable specifically by the director of a company.
While similar to the sort of redundancy payment ordinary employees of a company qualify for, director’s redundancy is calculated in a different manner and presents different requirements that make it distinct from such types of redundancy payments like statutory redundancy payments or similar packages.
This does not invalidate the director’s right to other forms of statutory payment packages as well, and as such it is quite advisable for a director that meets the requirements of director’s redundancy pay to put in their claim, even if their company has not reached the point of insolvency.
What is Redundancy Pay?
Redundancy pay in a general definition is a monetary benefit provided to an employee or director of a business in accordance with the length of time that they have remained under the employ or in service of said business.
This monetary benefit is usually employed in the case of the employee or their position within the company being terminated, or in the case of the company itself reaching a point of insolvency and bankruptcy.
Who Qualifies for Director’s Redundancy?
Apart from the obvious fact that the recipient of the director’s redundancy payment must themselves be a director, other requirements include a minimum of sixteen working hours per week as well as a length of employment for a minimum of twenty four months.
Marchford tells us that this is primarily proven through the use of employment contracts or similar documents that signify the director is under the employ of the company itself.
How is Director’s Redundancy Claimed?
Director’s redundancy is primarily filed and claimed by the director themselves hiring an external firm who specializes in such matters, wherein they will take the required information and documents and send them through the correct channels so as to avoid any errors from occurring.
This, of course, comes with a fee, and as such certain individuals wishing to claim their director’s redundancy payment may instead elect to file the claim themselves so as to save money or better understand the process.
To do so, they must bring the filled out form (of which is acquired from their liquidation specialist or via online sites) to the National Insurance Fund body, wherein the RPS department will handle and validate their claim.
Is Director’s Redundancy Taxed?
Fortunately for the recipient of the director’s redundancy package, the money contained therein is not taxed and therefore it is only the maximum allotted amount by way of the calculated factors that limits how much the recipient will receive.
Can Other Claims Also be Made Alongside the Director’s Redundancy?
When filing for director’s redundancy payment, the director can also file claims for unpaid holiday payments, unpaid or backdated salaries as well as loans against the liquidated company, though certain aspects of these subsequent claims may not be entirely applicable if the director has made themselves redundant.
It is important to note that the tax-free claim benefit only applies to director’s redundancy and not to other claims made in the redundancy package such as holiday pay or ordinary backdated compensation.
Can LLC Directors Receive Director’s Redundancy?
Though employees of limited liability companies are generally qualified for receiving redundancy so long as they fit the criteria for doing so, controlling directors of limited companies that choose to dissolve the company do not fall under the same category.
The logic behind this particular fine print is that, in dissolving the limited company that they themselves are in control of, the director is essentially firing themselves and as such their position is not considered redundant in such a manner.
This precludes the LLC director from receiving director’s redundancy benefits because they do not fulfill the requirements for filing said claim.
What Factors are Used to Calculate Director’s Redundancy Payments?
Apart from the prerequisite two years of employment as well as the requirement of company insolvency or the director’s position becoming redundant, certain other factors are brought into play that can affect how much the director will receive when filing for their director’s redundancy payment.
Age of Director
The particular age of the director can be a major contributing factor to how much they receive from their director’s redundancy payments.
Individuals under twenty-two years old will receive half a week’s pay for every year of employment, while individuals up to forty years old can receive one week’s payment per year of employment.
In the case of directors older than forty-one filing for redundancy payments, they will receive approximately one and a half week’s pay for every year of employment.
Years of Service
Up to a maximum of twenty years, the exact length of time the director has functioned under an employment contract of the redundant position or insolvent company will dictate how much they receive from their director’s redundancy payments.
The amount received per year of service will vary, depending on the other factors mentioned in this article as well as the director’s own gross salary.
Notice of Insolvency / Redundancy
In the event that the insolvent company or employer has failed to appropriately notify the recipient ahead of time, they may also claim additional compensations for however long their sudden unemployment may have lasted, translating to one week of pay per year of unemployment up to a maximum of one dozen weeks.
1. Michael J. Buckle, John L. Thompson. (1995) “The UK Financial System: Theory and Practice” Manchester University Press ISBN 0719048168, 9780719048166
2. Maarten van Kempen, Lisa Patmore (August 4 2008) “Redundancy Law in Europe” Kluwer Law International B.V.