It is a common assumption by directors of insolvent companies that they have no statutory rights in relation to redundancy, which is leading to a considerable number of directors missing out on claiming what can be a substantial sum.

If a company is struggling financially, despite the director’s best efforts liquidation looks to be the only option and there are no funds available then redundancy and other statutory entitlements could provide a welcome windfall at this difficult time.

Eligibility criteria

A director must be able to prove their status as an employee of the company in order to be eligible, rather than having just an advisory or non-executive role in the business.

Other criteria include;

  • Having worked a minimum of 16 hours per week.
  • Having worked under a contract of employment for at least two years (whether written, oral or implied).
  • Being registered on the PAYE system.

If a director can prove that they have taken a salary through the PAYE scheme, had an active day to day role in the running of the company and had a similar relationship to the company as other employees, then it is likely that they will be eligible for statutory payments.

Successful claims are paid from the ‘National Insurance Fund’ via the ‘Redundancy Payments Service (RPS).’

There are a number of statutory payments available to company directors if their status as a company employee has been proven. These include:

Salary and holiday pay

A director may be entitled to claim for unpaid wages up to a maximum of eight weeks, and up to six weeks of holiday pay for holidays accrued but not taken. This is subject to a weekly limit of £489.00.

However, it is a little known fact that if the director receives a low weekly wage then this can be increased in accordance with the National Minimum Wage Act 1998.

Notice pay

Payment instead of notice applies in redundancy cases, directors will be paid one week’s pay for each year of full employment (up to a max of 12 weeks).

Redundancy pay

The amount a director can expect to receive is based on age, length of service and gross weekly pay (max £525 pw), with an overall cap of £15,570 on how much can be claimed.

The calculation is made as follows:

  • half a week’s pay for each full year under age 22.
  • one week’s pay for each full year aged 22 or older, but under 41.
  • one and half week’s pay for each full year aged 41 or older

A minimum 2 yrs length of service is required to qualify, with the maximum is capped at 20 yrs.

Whilst any director can make a redundancy claim, only those that can prove their employee status are ultimately successful. Without the right advice this complex area of law can prove extremely difficult to navigate often leading to a failed claim.