When a business is struggling, directors often assume they are excluded from financial protections available to employees.
This belief frequently comes at a time when cashflow is tight, creditor pressure is mounting, and HMRC arrears are becoming difficult to manage.
In reality, directors may be able to claim statutory redundancy pay after liquidation, provided certain conditions are met. Understanding how this works and when eligibility applies can make a meaningful difference during an already stressful period.
When Can Directors Claim Redundancy Pay?
Redundancy pay is only available once a company enters formal insolvency, most commonly through a Creditors’ Voluntary Liquidation (CVL).
If a company simply stops trading without a formal insolvency process, statutory redundancy pay is not available. This is why timing and structure are critical.
Employment Status Is Key
To qualify for redundancy pay, a director must be able to demonstrate that they were also acting as an employee of the company.
This usually means:
- Being paid a regular salary through PAYE
- Having worked for the company for at least two continuous years
- Carrying out operational duties rather than purely strategic ones
- Having a written, verbal or implied contract of employment
Directors who only extracted funds via dividends and did not run payroll are far less likely to qualify.
Does This Apply After Liquidation?
Yes but only after liquidation formally begins.
Once the company enters CVL:
- The director’s employment is terminated
- Redundancy and related statutory payments can be claimed
- Claims are made through the Redundancy Payments Service
Payments are funded by the National Insurance Fund, not the company itself, meaning they do not worsen the company’s creditor position.
What Can Directors Claim?
Eligible directors may be able to claim:
- Statutory redundancy pay
- Unpaid wages (up to 8 weeks)
- Accrued but untaken holiday pay
- Statutory notice pay
Statutory limits apply, but for many directors this can still amount to a meaningful sum at a time when personal finances are under strain.
What About Owner-Managed or One-Person Companies?
Many directors assume redundancy pay only applies to larger companies. That isn’t always the case.
Why This Matters for Directors Under Pressure
When a business can no longer meet its obligations particularly HMRC liabilities directors often face uncertainty about their own financial position.
Understanding redundancy entitlement:
- Provides breathing space
- Reduces personal financial pressure
- Helps directors plan next steps with clarity
For many, it forms an important part of moving forward after insolvency.If your company is facing insolvency, professional advice at the right time can help ensure redundancy claims are handled correctly and without delay.
If you would like to know more please call 0116 299 4745 or
email info@springfields-uk.com
