Director Redundancy Claims
If your Scottish company is going into liquidation, you may be entitled to claim redundancy and other employment-related payments even though you are a director and shareholder of the business.
The important question is not simply whether you were a director. It is whether you were also genuinely an employee of the company.
If you were, you may be able to claim statutory redundancy pay and potentially other amounts such as unpaid wages, holiday pay and statutory notice pay from the Insolvency Service, subject to the normal eligibility rules and statutory limits.
Director claims are assessed individually, so do not assume either that you automatically qualify or that being an owner-director means you cannot claim.
Can a company director claim redundancy pay?
Possibly. Being a director or shareholder does not automatically prevent a claim, but you must also have been an employee of the company.
The Redundancy Payments Service considers the real working relationship, including whether there was an express or implied contract of employment and whether its terms were followed. A title, payroll entry or shareholding alone does not settle the question.
Statutory redundancy pay normally also requires at least two years of continuous employment and an eligible redundancy. Other employment-related claims have their own conditions and limits.
What evidence will I need?
You may be asked for your employment contract, payslips and P60s, bank statements showing regular pay, details of your hours and duties, and records of holiday, pension, sickness and company decision-making.
The Redundancy Payments Service may ask how dividends and salary were treated and when advice about the company’s insolvency was obtained. Supply accurate records; do not create or backdate documents to support a claim.
What payments might be available?
If you qualify, the government scheme may pay statutory redundancy, certain arrears of wages and holiday pay, and compensation for statutory notice that you did not receive. Each payment has its own eligibility rules, period limits and a statutory cap on weekly pay. You may not qualify for every element. If the company owes more than the scheme can pay, the remaining amount may be a claim in the liquidation. An amount you owe the company, including an overdrawn director’s loan account, may affect the payment you receive.
How do I apply once my company enters liquidation?
The appointed insolvency practitioner provides a case reference number beginning “CN”. Use it to make the primary online claim for redundancy and other money owed.
The Redundancy Payments Service may then ask you for evidence of your employee status. Loss of notice pay requires a separate later application, after the relevant notice period, using an “LN” reference sent to you. Indicate in the primary claim that you wish to claim notice pay; that does not itself complete the second application. Do not delay: the ordinary redundancy application deadline is six months from dismissal. Check the current government guidance for the specific claim and any exceptions.
Does entering liquidation guarantee a director payment?
No. A CVL is the company’s insolvency procedure; it does not decide whether a director was an employee or whether a particular payment is due.
The Redundancy Payments Service assesses the claim. A potential future payment should not be treated as cash available to fund the upfront liquidation work.
What happens to employees in a CVL?
Where the business ceases trading, employees will normally be made redundant.
Eligible employees of an insolvent company may be able to claim certain amounts they are owed through the government’s Redundancy Payments Service, subject to the statutory eligibility requirements and limits.
- Statutory redundancy pay
- Certain arrears of wages
- Accrued holiday pay
- Statutory notice pay
The insolvency practitioner dealing with the liquidation provides employees with the information needed to make the relevant claims.
What does a CVL mean for the directors?
For many directors, concerns about their own position are just as important as questions about the company itself.
Placing a company into liquidation does not of itself prevent you from being a director of another company. However, the liquidator is required to consider the company’s affairs and director conduct, and there are specific issues that may require attention.
Overdrawn director’s loan accounts
If you owe money to the company through a director’s loan account, that balance is generally an asset of the company and the liquidator will consider how it should be recovered.
Personal guarantees
A company entering liquidation can result in lenders, landlords or other creditors seeking payment from a director under a valid personal guarantee.
Bounce Back Loans
A Bounce Back Loan is normally a liability of the company rather than the director personally, but the liquidator may review how borrowing was obtained and how company funds were used.
Director conduct
The liquidator reviews relevant aspects of the company’s affairs and reports on director conduct as required by law. The fact that a company has failed does not by itself mean that a director has done anything wrong.
Directors’ duties when a company is insolvent
When a company is insolvent, directors need to take particular care over the decisions they make. The interests of creditors become especially important.
- Do not continue increasing company liabilities without considering whether they can realistically be paid
- Do not favour yourself, connected parties or particular creditors without taking appropriate advice
- Protect and preserve company assets and records
- Keep decisions properly documented
- Take professional advice where there is uncertainty about whether the company should continue trading
Taking advice early can help directors understand their duties and reduce the risk of making the company’s position worse.
How long does a Scottish CVL take?
The steps required to place a company into liquidation can usually be organised considerably sooner than the liquidation itself is completed.
How long the overall liquidation remains open depends on matters such as the company’s assets, creditor claims, employee issues, tax matters and whether there are any transactions or claims that need further investigation.
How much does a Scottish CVL cost?
The cost of a CVL depends on the circumstances and complexity of the company. Straightforward cases can often be dealt with for a clear fixed fee.
Our entry-level CVL fee: £[TO BE CONFIRMED]
We will review the company’s position and explain the likely cost and what is included before you decide whether to proceed.
Can I liquidate a company if it has no money?
A lack of cash does not necessarily prevent an insolvent company from entering a CVL.
The first step is to establish whether the company has assets, cash at bank, debts due to it or other resources that could contribute towards the cost. Where the company cannot fund the process itself, we can explain what other options may be available.
What if most of the company’s debt is owed to HMRC?
Tax arrears are a common reason directors seek insolvency advice. PAYE, VAT, Corporation Tax and other liabilities can build quickly when cash flow deteriorates.
Depending on the company’s overall financial position, possible options may include seeking a Time to Pay arrangement, restructuring the business or placing the company into liquidation.
What is different about a CVL in Scotland?
The underlying insolvency legislation applies across Great Britain in many respects, but Scottish liquidation procedure has important differences.
- Scottish CVLs operate under Scottish winding-up rules
- The Scottish CVL procedure uses deemed consent or a decision procedure conducted virtually for creditors’ choice of liquidator
- Relevant resolutions and notices are published in the Edinburgh Gazette
- The Accountant in Bankruptcy has a statutory role in Scottish corporate liquidation
- Scottish court procedure and creditor enforcement differ from England and Wales
Using advisers who understand the Scottish process helps ensure that directors receive advice relevant to a Scottish-registered company rather than a generic UK liquidation explanation.
Are there alternatives to a CVL?
Yes. Liquidation should not be recommended simply because a company is experiencing financial difficulty.
Depending on the circumstances, alternatives can include:
- Negotiating additional time with HMRC or other creditors
- Refinancing or introducing new funding
- Informal restructuring
- A Company Voluntary Arrangement
- Administration
- A sale or restructuring of part of the business where appropriate
We will consider the realistic alternatives before recommending that the directors proceed with liquidation.
Scottish CVL FAQs
Can I claim if I was the sole director?
You may be able to, but the Insolvency Service will examine whether you genuinely had employee status and the evidence of the working arrangement. Sole ownership does not create automatic eligibility or auto refusal.
Can I claim if I took dividends?
Dividends are not the same as wages. The Service will consider the actual employment relationship and pay records. Explain how you were paid and provide the records requested.
When can I apply?
The company must have entered a qualifying formal insolvency process and you need the case reference from the insolvency practitioner. Apply promptly after redundancy; a later separate application is required for loss of notice pay.
Who decides whether I qualify?
The Redundancy Payments Service assesses the evidence and decides the claim. If it rejects a claim, its decision letter explains the available route to challenge it.
Talk to us about liquidating a Scottish company
If your company cannot pay its debts, an early conversation can help you understand where you stand and what options are realistically available.
We will review the position confidentially, explain whether a CVL is appropriate and tell you what the process and likely costs would be before you decide whether to proceed.