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Government to improve insolvent redundancy consultations

THE INSOLVENCY SERVICE has launched a call for evidence on how to address the inherent conflicts that exist within employment legislation and insolvency law after two influential groups of MPs demanded a change to the law.

In a damning report into the collapse of delivery firm City Link and the actions of private equity owners Better Capital, MPs from two select committees said the rules governing insolvencies, which are too heavily skewed in favour of directors and investors.

As a result of the recommendations, Business Minister Jo Swinson launched a consultation on how to improve consultation and information sharing between employers and employees when a company is faced with insolvency and how to make consultation more effective.

“While our current system generally works well and is effectively complied with and its benefits agreed upon, we want to explore in more detail how consultation operates in these situations and what are the challenges and best approaches,” Swinson said.

The call for evidence, which will run for 12 weeks, is asking views on understanding of the current requirements, their purpose and benefits as well as factors that facilitate or inhibit effective consultation and ensuring timely notification and effective consultation.

Current legislation on collective redundancies – where an employer proposes to make 20 or more employees redundant – is clear but often difficult, if not impossible, to implement in some insolvencies and has been criticised as “inflexible” by insolvency practitioners.

Under the Trade Union and Labour Relations (Consolidation) Act 1992, consultation must start as soon as there is a ‘clear intention’ to make redundancies and begin at least 30 days before the first dismissal takes effect. This, claim IPs, is an almost impossible task in many administrations when the business is “shot to pieces” and there is little, if any, money left to pay employees while a full consultation is carried out.

R3, the insolvency trade body, said the separate sets of rules on redundancy consultations and insolvency are looked at in tandem to remove areas of friction.

“The insolvency profession is often placed in a difficult position when it is required to balance the sometimes contradictory legal requirements of employees and creditors,” said Phillip Sykes, vice-president of R3.

In some high-profile cases the cost of this to the taxpayer has run to tens of millions of pounds.

Last year, an employment tribunal found the employees at Comet, the electrical retailer that collapsed in 2012, had not been consulted on the potential for redundancies as legally required, with the court awarding a protective 70-to-90 day payout – leaving a potential £26m compensation package to be borne by the taxpayer. Deloitte has disputed that figure and estimates that the maximum possible protective award that could be applied in this case is less than half this amount.

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