All IP’s should consider referring any Director to us who they believe may have a Redundancy claim arising from the liquidation or administration of their limited company.
This is because Directors need our help for 4 main reasons.
- There is a common misconception that directors cannot claim for redundancy.
- The process can be overly complicated and confusing for some directors.
- Some IP’s can be reluctant to help directors if there are actions against them.
- Their redundancy claims can be used to pay for the liquidation process.
Dealing with these points in order.
Company directors are often unaware that they are able to claim redundancy pay and other statutory entitlements from NIF even though they were bona fide employees of the company, receiving a monthly salary via the company’s PAYE scheme. This is more so the case where they were also majority or 100% shareholders as well as company directors. In fact, many years ago, insolvency practitioners, actually advised company directors that they were ineligible to claim redundancy from RPS. Whilst this advice is no longer given by insolvency practitioners, their potential inability to claim from RPS has stuck in the minds of some directors who maybe were involved with a company liquidation more than 10 years ago.
Often company directors feel that they may be held responsible for the company’s insolvency and because of this they would lose their right to claim redundancy pay.
We have also heard reports that an IP firm with close links to UK clearing banks actively discourages directors from claiming redundancy and other entitlements because the resultant claim from NIF may dilute the bank’s claim in the liquidation.
The claims process for company directors can be complicated and some directors may find part of the information they are asked to provide by RPS confusing and sometimes ambiguous. For instance, one of the forms asks directors to provide a written memorandum as set out in section 318 of the Companies Act 1985, giving the terms and conditions of a director’s contract as an employee. Some directors do not know what this means, and without help from a regulated claims management company, they may decide to abandon their claim.
For Directors claims in Northern Ireland, directors need to provide their past 5 years P60’s and full sets of the company’s annual accounts, not just the abridged accounts filed at Companies House. Often such information is unavailable following the commencement of liquidation.
Many company directors split their earnings between salaries, dividends and loan account repayments, often with the advice of their accountants. This results in some directors being unaware of their actual salary without input from their advisors who are often unpaid and consequently unhelpful at the liquidation stage.
Often directors restrict their salary to the level of the taxable personal allowance and supplement their earnings by dividend payments. This results in their wages being less than the National Minimum Wage. In certain circumstances, directors are eligible to base their claims on the NMW which results in a higher claim being paid out to them by RPS. Not many directors are aware of this.
We find that many directors of companies forced into liquidation, may not have taken any holidays in recent years due to financial pressures, and are unaware that they can claim for up to 6 weeks accrued holiday pay. This is in addition to a claim for up to 8 weeks arrears of pay. They can also claim for up to 12 weeks notice pay. However notional Job Seekers Allowance is always deducted from their claims so they need to be advised at the outset, to make a claim for it if they are eligible.
Some Directors may tell their Liquidator or the Official Receiver that “the company had no employees”; meaning that there was no workforce, just them. They are not asked how they were paid themselves and so those Directors who were actually on the payroll do not get the opportunity to make claims.
Subsequently when we are instructed to help these Directors, there can be a reluctance by Liquidators to apply for a CN reference instead producing the Directors report to creditors which discloses “there were no employees”. Often we have to provide pay slips/P60’s to prove employee status. Especially if it is 3 or 4 months into the liquidation and the IP is looking to close the case soon.
It is possible for Directors to utilise their Redundancy claims for pay for the costs of the liquidation. There is nothing wrong with them doing that. The claim can also be used by Directors to set up a new business or to buy company assets from the liquidator. The proceeds can also be used to settle any antecedent transactions or to repay an overdrawn directors loan account, in certain circumstances. So basically, Directors can use the proceeds as they see fit. If the claim is used to re-start the old business then the Directors are likely to use the same accountant and business advisers who referred the Director to the IP in the first place. This will not go unnoticed and will stand the IP in good stead for future work referrals.
