New: Update February 2026 (article originally published August 2025)
In the past year we have seen significantly closer scrutiny of redundancy pay claims made by directors of insolvent companies. In a recent case where Antony Batty & Company acted as Administrators, the Redundancy Payments Service (RPS) rejected the directors’ redundancy pay claims, despite the directors being on PAYE and having written employment contracts. The Employment Tribunal upheld the RPS decision.
This mirrors recent tribunal decisions and confirms that director claims are now being examined in greater detail, and that directors must be able to demonstrate genuine employee status. Each case turns on its merit.
An Insolvency Practitioners’ guide to redundancy pay
In the 12 months to February 2025, 261,223 potential redundancies were disclosed to the Insolvency Service. Redundant employees have statutory rights, including getting redundancy pay, accrued holiday pay, notice pay, unpaid wages, and unpaid pension contributions. Normally the employer pays this. But what happens when a company goes out of business and there are not enough funds to cover these payments? The answer, which many are not aware of, is that the Redundancy Payment Service (RPS – a Government agency), can fund redundancy payments (subject to certain statutory limits) even when the insolvent employer is unable to pay these claims.
This can apply to directors too – but it appears the RPS is being much stricter now on claims from directors.
If the company is insolvent and cannot meet its obligations, a Creditors’ Voluntary Liquidation may be the appropriate route. Our Creditors’ Voluntary Liquidation page explains how the process works and what directors need to consider.
What can employees apply for when made redundant after insolvency?
Employees made redundant due to the insolvency of the company they worked for can apply for the following, (subject to certain caps* on what the Redundancy Payment Service will pay):
- Statutory redundancy pay, providing the employee has worked for their employer for at least 2 years.
- Accrued holiday pay.
- Unpaid wages, overtime and commission.
- Statutory notice pay.
- Unpaid pension contributions
*The statutory cap on a week’s pay for redundancy calculations is £719 per week for redundancies after 6 April 2025.
These statutory payments are claimed through the Redundancy Payments Service and are paid from the National Insurance Fund.
What about redundancy pay for company directors?
This can be a complex area. Directors can be entitled to the same redundancy payments as employees, providing they can prove their status as an employee of the company, and fulfil more than an advisory or non‑executive role. It is important to obtain professional advice to establish whether such a claim can be established.
New: Our recent case: directors’ claims rejected despite PAYE and contracts
In a recent Administration handled by Antony Batty & Company, the directors:
- had written employment contracts
- were paid monthly through PAYE
- carried out day‑to‑day operational duties
Despite this, the RPS rejected their redundancy claims, arguing that the directors were not employees for statutory purposes.
The directors appealed to the Employment Tribunal. The Tribunal upheld the RPS decision.
This case is important because it demonstrates:
- the level of scrutiny now being applied to director claims
- that PAYE and a contract are not enough on their own
- that directors must be able to evidence genuine employment beyond formal documentation
This is consistent with what we are seeing across several other cases.
Directors facing scrutiny over redundancy claims often need clarity on their responsibilities during financial distress. Our Directors’ Duties page sets out the key obligations.
New: A recent tribunal decision showing increased scrutiny of a director’s redundancy PAY CLAIM
This recent employment appeal tribunal decision from May 2025 supports what we are seeing in practice.
Key points:
- The director claimed statutory redundancy.
- The Employment Tribunal originally accepted the claim.
- The RPS on behalf of the Secretary of State appealed.
- The Employment Appeal Tribunal (EAT) overturned the decision.
- The EAT held that the initial tribunal had misapplied the employee‑status test.
- The judgment confirmed that PAYE and a written contract are not enough if the underlying reality does not demonstrate genuine employment.
- In practical terms, this meant no statutory redundancy payment was payable to the director by the Secretary of State.
This case shows the RPS challenging director claims and tribunals supporting that challenge. It reinforces the point that director claims are being tested rigorously, and that tribunals are prepared to uphold refusals where genuine employee status is not proven.
What is the role of Insolvency Practitioners in Redundancy Pay?
Insolvency Practitioners (IPs) play an important role in calculating redundancy pay when a company enters liquidation or some other insolvency procedure, including:
- Employee Claims: IPs guide employees through the process of claiming redundancy pay, unpaid wages, and other entitlements from the National Insurance Fund via the Redundancy Payments Service (RPS). They ensure employees meet eligibility criteria and submit the necessary documentation in a timely fashion.
- Case Reference Number: IPs provide employees with a case reference number, which is essential for submitting claims to the RPS.
- Asset Realization: They oversee the insolvency process, which involves selling the company’s assets. The proceeds are used to pay creditors, including employees, if funds are available.
- Legal Compliance: IPs ensure that the company complies with legal obligations, such as issuing redundancy notices and handling employee rights during the insolvency process. This is important to the directors as failure to follow the guidelines may result in fines or even a custodial sentence.
- Director Support: For directors who are also employees, IPs can assess their eligibility for redundancy pay and guide them through the claim process.
It is our job to save businesses – and jobs
One of the roles of IPs and restructuring specialists such as Antony Batty & Company is to save businesses (and jobs) where possible as well as to implement insolvency procedures, should they prove necessary. As the most recent R3 survey shows, where insolvency practitioners were involved, 39% of insolvent businesses were saved, 7,200 businesses were rescued and 297,000 jobs were saved.
Part of the service we offer to businesses in financial difficulties is to guide employees on the directors’ behalf and ensuring that accurate advice is given, as well as practical help and guidance.
Please contact us at any of out offices for an initial, FREE of charge, discussion:
FAQs for Directors about Redundancy Pay
Does being on PAYE guarantee redundancy pay?
No. PAYE treatment is only one factor. Tribunals look at the reality of the working relationship.
Does having a written employment contract guarantee eligibility for redundancy pay?
No. A contract helps but is not essential. The RPS will examine whether the director was genuinely working under that contract.
Are more director claims being rejected?
Recent tribunal decisions and our own case experience show that the RPS is applying closer scrutiny to director claims.
What evidence should directors prepare?
- Hours worked
- Duties performed
- Reporting lines
- Board minutes
- Evidence of control exercised over the director
- How decisions were made in practice
When should directors seek advice?
As early as possible, ideally before a formal insolvency process begins.
