If it’s broke, be sure to fix it

In August 2018, the Government announced a crackdown on rogue directors seeking to trade insolvent companies.

With high profile businesses still dominating the headlines for poor financial performance, Alexander Curnow looks at the employee risks involved.

So, what do you do when business isn’t going great and investors aren’t willing to prop it up any longer? You get the directors together and agree staff cuts are the only way. It’s simple, right? Or is it?

If you are proposing to make 20 or more staff redundant within a 90 day period, there are stringent legal requirements and onerous consequences for failure. You need to elect representatives or engage with the registered trade union for collective consultation, in addition to individual consultations for a minimum period (30 or 45 days, depending on the scale).

However, it’s important not to leave things too late as failure to comply entitles employees to a protective award of up to 90 days’ uncapped pay – each!

The ex-CEO of Sports Direct, Dave Forsey, will undoubtedly agree. He is being personally prosecuted in the criminal courts for failing to notify DBEIS of impending redundancies – he gave staff just 15 minutes notice and DBEIS none of the required 45 days. So much for the corporate veil!

Alternatively, you might benefit from engaging an Insolvency Practitioner alongside a solicitor to deal with the insolvency situation and employees simultaneously.

You will usually need to navigate the complexities of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) when implementing the new, more profitable, structure and retaining the top talent.

TUPE restricts companies from effecting a fair dismissal or amending employment contracts unless it’s for an economical, technical or organisational reason involving workforce changes. If it doesn’t meet these criteria, the dismissal is automatically unfair and the compensation available to the employee unlimited or the contractual variation may be invalid. The company will also need to inform and consult its staff or risk a claim of up to 13 weeks’ pay per employee.

Whichever way you deal with it, a formal consultation with employees is required if you are looking to make changes and getting it wrong certainly won’t help the business recover.