When a company is insolvent it is well known that the staff are entitled to be paid redundancy payments. This is paid from the assets of the company. However, in the first instance HMRC make the payments to staff. Then if assets allow HMRC are paid back.
There is a strict calculation criteria for the amount payable. However, provided an individual meets the criteria the amount is guaranteed to be paid by HMRC.
What is less well know is that directors of a company have a right to redundancy payments. However, in many occasions where a company is struggling it is often the situation that the directors will lower their pay, or take nothing whatsoever, in an attempt to the business afloat.
When a director also acts as an employee of the business they may be entitled to some redundancy payment. To consider the eligibility you need to look at the following:
- Has the business been incorporated for at least two years.
- Has the director acted under a contract (this is not essential)
- Has the director worked for a minimum 16 hours a week
- Did the director act in more than a mere advisory role, were the needed for the day to day business of the company
If the company can not pay the redundancy pay a claim is made to the Redundancy Payments Service. The amount that can be claimed is calculate using age, gross weekly pay at the time of redundancy and length of service.
- Aged 18-21: ½ week’s pay for every year of service
- Aged 22-40: 1 week’s pay for every year of service
- Aged over 40: 1 ½ week’s pay for every year of service
Directors made redundant after 6 April 2017 can receive a maximum cap on the weekly pay of £489, so the maximum claimable is £14,670 after 20 years of service.
The claim is not limited to unpaid wages. Claims can be made for unpaid holiday and notice pay as well as unpaid pension contributions, statutory maternity/ paternity/ adoption or sick pay.
It can therefore, be seen that there is help out there, even for directors of an insolvent company. Whilst it may be beneficial to try and “fight” on with a struggling company, it may in fact be in the creditors’ and the director’s best interest to liquidate the business. This may draw a line under a failing company and release some funds to the director.
If you are experiencing difficulties and would like to discuss this, or any aspect of your business please contact us at firstname.lastname@example.org or call us on 01625540744.