Redundancy of directors
Directors are often the most costly members of staff and therefore the
retention of such employee must demonstrate a clear value to the
business. On occasion the Insolvency Practitioner’s staff may
be able to fulfil the role and therefore the cost-benefit of retention
may be more weighted towards redundancy.
To reduce the risk of redundancy early in the process the directors
should try to demonstrate their value to the Insolvency
Practitioner. IPs are always looking for creative ways to
rescue the business or realise the most value from the assets of the
business. Any director or employee that is considered to be
disruptive or unhelpful is likely to receive their p45.
Even if directors are made redundant they still retain their
responsibilities to provide assistance to the Insolvency
Practitioner. This may result in having to work for free for
a short period.
Employee status
Employees are entitled to redundancy pay, holiday pay and
arrears of pay subject to statutory weekly limits (£330 per week from 1
Feb 2008). Such payment would normally be made by the DTI’s
Redundancy Payment Service.
In order to claim redundancy the director concerned will have to
complete an RP1 and
RP3 form.
This would be sent to the
Redundancy Payment Service.
The RPS then determines, following confirmation from the Insolvency
Practitioner, what to pay the director. The RPS may take the
view that the director was not a true employee and therefore may refuse
to pay.
Determining what constitutes an employee is complex and has been
subject to recent case law. Recently there have been a number
of cases where employment tribunals have found in favour of the
directors.
Aspects that may indicate that a director is an employee include the
existence of an employment contract, director paid like a normal
employee, director behaves like an employee (e.g. hours of work,
holiday, etc.).
Should a director find that the RPS will not pay redundancy then the
director should consider taking the employer (the company) to an
employment tribunal. In the case of Administration this will
require the consent of the IP.
More information regarding the rights of directors and
employees when the business is insolvent can be found here.