During the previous UK government’s tenure, in March 2015 a call for evidence was launched to understand better the employee consultation process when an employer faces insolvency, restructure or other form of company rescue (Call for Evidence on Collective Redundancy Consultation for Employers facing Insolvency).

The call for evidence sought views on the following areas:

  • the understanding of the current requirements of consultation for employees in an insolvency situation
  • the factors that facilitate and inhibit effective consultation in an insolvency context
  • the role of directors and insolvency practitioners in consulting in an insolvency context
  • how timely notification to employees is achieved in an insolvency context.

Requests for evidence closed in June 2015 – two legal firms, ten insolvency practitioners, four recognised public bodies, five trade unions and seven trade bodies were among the 28 responses received.

The responses received suggest tensions exist between insolvency law and employment law. The submissions were that such tensions:

  • impede effective consultation
  • result in a struggle to balance competing creditor demands
  • make it more difficult to preserve stakeholder value
  • impede termination/transfer of employee contracts.

Overall, respondents acknowledged the benefits of consultation and notification but suggested that the government needs to do something to address the conflicts between insolvency and employment law.

As covered in previous blogs, not following legislation can lead to directors facing criminal charges (City Link verdict is… NOT GUILTY!) and a hardline approach from the Secretary of State for Business Innovation and Skills (BIS) where infringements of legislation are clearly identified (Consult in UK redundancies or be fined).

Businesses finding themselves in financial distress should seek legal advice as early as possible and be aware that BIS closely scrutinises decisions that may eventually lead to redundancies.

The full 300+ page report released by the Insolvency Service can be found here.