Director Redundancy

The majority of people will tell you that directors cannot make the same claim as employees from the Insolvency Service for wage arrears and redundancy. This is a common misconception and is not true. Directors are employees of a limited company much the same as any other employee.

The difference with a claim made by a director is that the Insolvency Service will take extra steps to determine whether you acted in the same manner as other employees or whether you were a director with little day to day involvement in the Company. When establishing this, the Insolvency Service look at the following types of thing:

• How many hours per week you worked (ie was it your full time job);
• Did you take your holiday allowance like other staff;
• Did you work at the Company's premises;
• Did you have a contract;
• Were you a shareholder;
• Had you put your own money in to keep the Company going.

As you can see, there are a number of considerations when making a claim as a director but given that the payment can be in excess of £10,000 it is well worth going through the process. With the right advice the majority of small business owners who work at their limited company full time will receive a full payment for their redundancy. Not only can this make a big difference to personal finances at a time of difficulty but can provide valuable funds to contribute to the cost of a liquidation.

Employee Redundancy

For many Companies that have been trading for a long time or have a large number of staff, one of the biggest barriers to returning to profitability is the inability to downsize due to prohibitively large redundancy costs. This can lead to a Company continuing to trade whilst making losses just to service an excessive payroll. This is compounded by the fact that most business owners feel a sense of duty and responsibility towards their staff and do not want to leave them without a job or wages.

Fortunately, the Government takes a similar attitude towards the importance of paying staff their proper wages and redundancy pay. To this end, the Government Insolvency Service operates a redundancy payments service which deals with payments to redundant employees when a Company goes into formal insolvency.

What this means to you is that by restructuring your business through a formal insolvency procedure such as Liquidation or Administration you can lay off staff in the knowledge that they will still be paid in full but without you having to find the funds. Letting staff go can be a very difficult thing to do and often employees don't react well but being able to reassure them that they will receive their full pay and redundancy can make a really big difference to how they take it.

Employees are able to claim the following payments from the Insolvency Service:

• Wage arrears - up to 8 weeks
• Unpaid holiday pay - up to 6 weeks
• Redundancy pay
• Pay in lieu of notice - 1 week per year of service up to 12 weeks
• Unpaid pension contributions

Making redundancies is rarely something we hoped to be faced with, but with the right support you can still get the best outcome for you and your staff. We will always work with you to help you achieve the best outcome you can in the most affordable way possible so please call us for further advice on 0800 066 3122