Can I make myself redundant?

[benF]

My business is a software development company, it’s over 20 years old, employs around 20 people and, until this FY, has been successful and profitable. However this year we have made a significant loss, and I am in the process of making a round of redundancies to cut headcount and try to get losses under control.

I am the sole shareholder and have been the managing director since the company was founded. I pay myself a salary commensurate with the role. However, I have concluded that the company needs fresh blood at the helm, and I have decided to include myself in the redundancies. My intention is to promote from within, for a senior colleague to take on the role of MD. On this basis, the role itself has not become redundant.

However, having given 20 hard years to the business, I don’t want to walk out with nothing apart from the shares – my question to this forum is, would it be legally acceptable to award myself an ex-gratia payment in lieu of a redundancy payment?

[atticus]

Is the company solvent?

Don't you pay yourself through dividends on top of salary?

[PallasAthena]

Technically it's jobs that get made redundant not people so if you are currently MD and the MD position is going to continue more or less unchanged but with someone else doing the job then there is no redundancy so you cannot make yourself redundant. The position of MD will still exist. I assume you were an employee of the company in your role as MD (redundancy can only arise in relation to contracts of employment).

But there may be other ways to achieve what you want. ULA is knowledgeable about employment matters.

[atticus]

Isn't this actually a company law question and not one of employment law? As sole shareholder and director of this company, the OP can pay himself what he wants so long as this is within company law. That is why I asked if the company is solvent.

[benF]

Thanks for the interest in this issue.

Yes, the company is currently solvent, although loss making. That cannot be sustained for ever of course. When it has been profitable in the past, I have also taken dividends on top of my salary (which is fair and benchmarked).

Currently its loss-making in this FY so I cannot take a dividend legally.

I appreciate that the MD role is continuing, so I cant claim redundancy unless the company goes into administration.

The question is: is there any way i am able to take an ex gratia payment (in lieu of redundancy, and the same size as my redundancy payment would be if i were being made legally redundant) when i leave my role?

[atticus]

It remains my view that this is not an employment law question. You want to pay yourself more. HMRC may question your trying to take a tax-free payment in the circumstances described.

Have you asked your accountant?

[benF]

Thank you - I have asked the accountant but his response was woolly. I'll ask him to reconsider it.

[PallasAthena]

Settlement agreements when senior staff leave their posts are common and companies can make significant payments under them but the details definitely need legal input. Those agreements are, in effect, ex-gratia payments. The first £30,000 of those payments is (or was anyway) tax free for employees but taxed as income above that, but with variuos complications around pay in lieu of notice. There might be different rules for directors though. An area that needs accounting/legal involvement. It's not something I'm competent to express an opinion on.

Don't use statutory redundancy pay as a guideline though as that doesn't pay very much (max about £19,000).

[ULA]

Couple of questions / thoughts, however I do agree with atticus that you should be getting some informed legal advice.

1. Do you have either an employment contract of service agreement for yourself?
2. Redundancy is when a position in a business no longer exists, this is not a redundancy situation as you are going to replace yourself with someone else.
3. You say the company is loss making but solvent, are you going to ensure that when appointing the new MD they are made fully aware if the financial situation of the company?
4.Do you intend to retain your shareholding in the business when you hand over the role of MD?
5. Do you intend to continue paying yourself a salary after you hand over the role?
6. My thought on the settlement agreement is that given the process it would be not be logical to try and agree this with yourself. Doubt if you could anyway if you do not have some sort of contract in place which could deem you as an employee.
7.Have you thought of taking on the new MD and maybe becoming the chairperson for which you could continue to be paid a salary?

[PallasAthena]

EXC ULA atticus The post above is clearly from an AI bot of some sort so I thought I would have a go at at AI. I used Microsoft's 'Copilot' AI which now comes as part of Wndows10/11. I just copied into it the whole of OP's post #1 and asked Copilot to "ANSWER THIS" and this is what I got (the link in the last sentence takes you the UK law firms it used - four firms are cited in the original). It's not wrong as such (or is it?) but rather generalised, but if I'd fed into it additional information from later posts it might get more specific. And all in less than 5 seconds....

Maybe AI will do LegalBeagles out of a job!

In your situation, considering the company's financial challenges and your decision to include yourself in the redundancies, you're contemplating whether an ex-gratia payment would be legally acceptable in lieu of a redundancy payment. Let's delve into this:

1. What is an Ex-Gratia Payment?
   • An ex-gratia payment is a voluntary payment made by an employer to an employee without any legal obligation. It is typically offered as a goodwill gesture, often during redundancy situations or other employment terminations.
   • Unlike statutory redundancy pay (which is mandatory under certain conditions), ex-gratia payments are not legally required.
2. Redundancy and Ex-Gratia Payments:
   • In redundancy scenarios, you can receive the following sums as an ex-gratia payment:
     • Statutory redundancy pay: This is the mandatory payment based on your years of service, age, and weekly pay.
     • Any lump sum compensation payment: This is subject to a £30,000 tax-free limit.
   • Ex-gratia payments are often used to expedite the termination process without going through extended consultations.
3. Your Specific Situation:
   • As the sole shareholder and managing director, you’ve decided to promote a senior colleague to take over the role of MD.
   • While the role itself hasn’t become redundant, you’re considering an ex-gratia payment for your years of service and dedication.
   • Legally, it is acceptable to award yourself an ex-gratia payment in lieu of a redundancy payment, especially if it aligns with the company’s best interests and your contributions.
4. Seek Legal Advice:
   • To ensure compliance with employment laws and tax regulations, I recommend consulting with a legal professional or an employment solicitor.
   • They can provide tailored advice based on your specific circumstances and help you structure a fair ex-gratia payment.

Remember that while ex-gratia payments are discretionary, they can recognize your long-standing commitment to the business. However, professional legal guidance is crucial to navigate this process effectively

[atticus]

PallasAthena How much of what your AI software generated for you do you consider to be questionable? (Hint: I can see at least one point.)

[ULA]

Therein lies the issue with AI generated responses to legal issues they are not always entirely accurate. Yes there are inaccuracies in that generated response.

[atticus]

I made a similar point in a post that has not yet been published. There is at least one point that is questionable.

[ULA]

Sorry atticus I have just approved your post.