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When trade ceases due to insolvency and a company is subsequently liquidated, its directors may find themselves eligible to claim redundancy. The intricacies of director redundancy are little known even among those in professional circles and with some accountants lacking awareness of the process many directors liquidate their company and walk away from a potential pay-out. In this often misunderstood market, working with an expert is vital to ensuring you are claiming what you are entitled to.

The claims process can be complex but RBR Advisory can point directors towards a trusted and fully regulated third party who are authorised by the Financial Conduct Authority and have a wealth of knowledge and experience of working with the Redundancy Payments Service (RPS).

Establishing your role and your right to claim

With the many complexities of running a company, directors typically hold several distinct roles within their business simultaneously – a shareholder, creditor, director, and oftentimes, an employee. Establishing a director’s status as an employee is vital to unlocking any potential redundancy claim and this is most easily done by providing a written contract of employment. There is added difficulty when a written contract is not in existence, however, oral or implied contracts can also be used to demonstrate employee status should the need arise.

The key to determining the validity of an oral or implied contract is to prove the director held more than an advisory or non-executive role in the business and could reasonably be seen to have a similar relationship to the company as an employee regarding day-to-day operations. This could be down to duties, hours worked, or salary taken. For example, employee status may be able to be validated if a regular salary through PAYE was received rather than remuneration being taken solely through dividends or expenses.

TUPE, right of set off, and overdrawn directors' loans

Other areas which need close consideration are the manner in which the company is brought to a close, either through liquidation or strike off, as well as taking into account Transfer of Undertakings (Protection of Employment), or TUPE, regulations particularly in pre-pack administrations, and how this may impinge on the eligibility to claim.

It is only through in-depth knowledge of the redundancy process that will also allow consideration to be given to any outstanding overdrawn directors’ loans and how rules surrounding the right of set off may affect the amount received by the director. An explanation of how a redundancy pay-out may be used to fund the fees associated with a CVL or settle personal guarantees which may crystalise following the company’s closure can assist in the decision making process.

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