Role of Insolvency Practitioners in Helping Directors Claim Redundancy

When a business enters into liquidation, the responsibilities of its directors can often become overwhelming. One of the most important concerns is ensuring they can access redundancy pay, particularly if they’ve been made redundant due to the company’s closure. Insolvency practitioners (IPs) play a key role in this process, guiding directors through the complexities of redundancy claims and making sure they receive their entitlements. In this blog, we explore how insolvency practitioners help directors claim redundancy pay and the steps involved.

Redundancy pay is a financial entitlement that employees, including directors, are entitled to receive when their position is made redundant, usually due to the business ceasing operations or reducing the workforce. Redundancy pay is calculated based on factors like the employee’s length of service, age, and weekly earnings.

For directors, the situation can be slightly more complicated. Unlike regular employees, directors are often both shareholders and employees of the business. This dual role can sometimes make it unclear whether they’re entitled to redundancy pay, particularly in cases where they were involved in the company’s day-to-day running.

Yes, directors can claim redundancy pay, but they must meet certain criteria. If a director has an employment contract with the company and is made redundant as part of the liquidation process, they may be entitled to the same redundancy benefits as other employees. However, there are specific factors that determine whether a director qualifies for redundancy pay:

Employment status: Directors must be employees rather than just office holders. This is often the key hurdle. If a director has a formal employment contract and works for the company under the same conditions as other employees, they may be entitled to redundancy pay.

Length of service: Similar to regular employees, directors must have been employed for at least two years to be eligible for redundancy pay.

Role in the business: If the director has played an active role in the daily running of the company, as opposed to being a shareholder or a non-executive director, their entitlement to redundancy pay is more likely to be recognised.

Role of Insolvency Practitioners in Helping Directors Claim Redundancy