Directors and Redundancy

Directors and Redundancy

Redundancy is not a nice thing to deal with. It doesn't matter whether you are a director having to make some or all of your team redundant or an employee or director facing redundancy, it is never a good experience. Sadly, when a business is in financial difficulties it is often inevitable.

When you are dealing with all the other problems surrounding the insolvency of your business dealing with redundancy can feel like a huge issue. Fortunately the rules surrounding it and what your employees (and indeed you) may be entitled to are clear and precise.

These are the most common questions people ask us when dealing with this issue.

Redundancy in liquidation

One of the most difficult parts of a failing business is having to make colleagues and team members redundant. Sadly, redundancies are often an inevitable part of the liquidation process so the best way to deal with them is to understand what your employees are entitled to. 

The amount of redundancy paid is based on the age of the employee and their service with your business and what they can claim for may also vary. Usually though they will be entitled to:

  • Wages
  • Holiday Pay
  • Redundancy Pay
  • Pay in lieu of notice
  • Unpaid pension contributions

If you do need to make staff redundancies then it is usually best to simply bite the bullet and do them. Continuing to pay staff when they should be made redundant will just lead to further debt in many cases. For a more detailed explanation, click here.

What about personal guarantees

Directors often offer personal guarantees for loans and other financial matters to ensure their business has the funds to hand for startups and expansions. However, these personal guarantees can come back to haunt directors if the company has financial issues.

Personal guarantees can result in the Director being personally liable if the company fails but we often find that people do not always realise they have them or cannot remember the details. If you have personal guarantees you should:

  • Gather all the pertinent contracts and information to get a clear picture of what they could mean
  • Have separate documents that relate to the personal guarantee
  • Be aware of your obligations so you can negotiate a solution

Directors personal guarantees are one area where the limited company status may not protect you from debt, so you need to be fully aware of where you stand. For more information on personal guarantees, click here.

What happens with dividends and directors loans?

If you are a company director one method of paying yourself is to take a small wage and 'top up' with dividend payments. While this is a perfectly reasonable method during the good times if your business fails and you have continued to pay dividends then you could:

  • Find yourself with an outstanding directors loan
  • Have taken dividends to which you were not entitled. 

Dividend payments are often converted to directors loans for very sensible reasons but these can be a personal burdon if your company is insolvent. They could also result in your owing your own business money and therefore being personally liable for that debt. Click here to find out more about dividends and directors loans.

Redundancy pay for directors

Directors are not always aware that they may be able to claim redundancy if their business is insolvent. As a Director, as long as you meet the required criteria that indicate you were employed as a PAYE paying employee, you may be able to claim redundancy. Often this is a surprise to Directors who assume that they will not receive anything. However, if you can claim, the amount you can claim and when and how to claim are all dependant on your circumstances.

Click here for a full explanation of the rules surrounding directors redundancy

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If you think your business may be insolvent it is important to get help as soon as possible

Call us for a free initial discussion 

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