If a limited company becomes insolvent, ceases to trade and goes into liquidation, it might be thought that a majority shareholder who is also a director and employee of the company would not be entitled to anything.  This is not necessarily so! 

In the case of Clarke v Clarke’s Construction Limited, Mr. Justice Elias (then President of the Employment Appeal Tribunal – and incidentally the guest speaker of the Neath Port Talbot Law Society Dinner in 2008 – gave guidance on this matter.  Essentially, he stated that when a contract of employment is in place, there would be a presumption that even a majority shareholder is an employee and entitled to a redundancy payment under the Government guaranteed payment scheme.  He stated that where an individual employee has paid tax and national insurance as an employee, he has on the face of it earned the right to take advantage of the benefits which employees may derive from such payments.

Simon Thomas, partner, states “Sir Patrick’s Checklist is an excellent tool to identify whether in a failed business all is necessarily lost to the individual who may have built up the business over a number of years and suffered in the recent economic downturn.  However, there are time limits for bringing such claims and anyone affected should avoid losing the opportunity by taking advice as soon as possible."