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Redundancy for Directors

At PBC we are often having directors express surprise when they are told they have employment rights and that it is possible to claim for their redundancy entitlements against the Redundancy Payments Service (“RPS”).


However, late last year the Government updated their guidelines for directors making redundancy claims.  While the guide looks “Innocent” and helpful, the practicalities are far from straight-forward.


The RPS introduced a painstaking questionnaire that directors must complete.  Cynics would say this questionnaire was designed to ensure directors cannot claim their legitimate entitlements, but directors are encouraged to grit their teeth and complete it all the same.  Questions you will be asked include:


  • Were you a shareholder of the company?
  • How much did you earn over the past 3 years?
  • Were you paid less than the minimum wage?
  • Were you responsible for starting company insolvency discussions with an insolvency practitioner?


These questions are designed to imply you made yourself “Voluntarily redundant,” so should not be entitled to your employment rights. This is an argument the RPS have previously lost in court where the court questioned the RPS on whether they support directors breaching their statutory duties and continue trading whilst insolvent or, to follow the law, cease trading and make all employees redundant.


Further, if you have an adverse loan account (i.e. you owe the company money) then the RPS will automatically claim a right of set off and not pay any entitlements.  This approach is woefully unsound but until challenged they will continue to apply it.


In essence, a director needs to prove they were an employee.  The view of the RPS is that an employee would not loan to (or borrow from) their employer, they merely fulfill their job role and are paid accordingly.  With this in mind, the RPS may also ask for evidence such as pay slips, P60s, details of any dividends paid, copy accounts and bank statements.


So, while the RPS have set out a procedure that seeks to reject employee claims from directors, it is still possible to claim nonetheless.  Who knows, one day a director will take such an exception, they may appeal a rejection and see this practice challenged in court again.


If you require any advice or assistance on mediation or any other insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 or email to  Alternatively, visit for further information.