The UK government response to a call for evidence on collective redundancy consultation in insolvency situations provides little clarity on the way forward, writes David Menzies.

High profile and large scale insolvencies in recent years, such as Woolworths, City Link, and Comet, have highlighted the inherent tension between saving a business and the requirement to consult with employees who are facing redundancy.

In March 2015, following increasing concern about the cost of penalties applied by Employment Tribunals being paid from the public purse, the UK government issued a call for evidence to seek a better understanding of the implications of collective redundancy consultation when a company faces insolvency.

The government response to the call for evidence was recently published bringing both relief and disappointment.

Recognition of the significant difficulties in achieving meaningful consultation when a company is in severe financial distress brings some relief, especially as this seems to be recognised universally by trade bodies, the insolvency profession and trade unions that submitted evidence.

However, there is disappointment that the response is only to ‘carry out further work to see how best to address the points raised’.

Conclusion deferred on a clear way forward

The final conclusion defers further into the future a clear way to address the present inherent tension between employment law and insolvency law and which, in certain circumstances can result in businesses which could be saved from failure ceasing to exist.

The response states that “the government’s position remains that there is no conflict between insolvency law and employment law”, a view opposed by every single respondent. All 27 respondents stated the current legal tension as an inhibitor to effective consultation.

A range of issues were identified from the evidence collected. These included:

• Meaningful consultation could not often happen in an insolvency situation, with the added issues of lack of time and funding inhibiting effective consultation periods.

• Uncertainty around when consultation should commence and how long consultation should last for.

• Concerns that disclosure of financial difficulties could undermine business rescue attempts.

• The process to identify employee representation was prohibitive and onerous for insolvency practitioners.

• The penalty regime for failure to consult was undermined due to the burden falling on creditors and taxpayers.

None of these conclusions are new or unexpected to those who work closely in restructuring and turnaround situations.

ICAS call for series of measures

While there are no firm proposals within the government response to address these issues ICAS called on the government to take a number of specific measures in our evidence . These included:

• Making the distinction in legislation between consultation requirements for solvent and insolvent entities.

• A simplified notification process, including the ability to submit electronically and using one notification for multiple sites.

• Removing insolvent companies from the current statutory consultation requirements.

• Working with the insolvency profession to introduce a principles-based standard for the insolvency profession to work to, which would better reflect the wide spectrum of situations which can be faced.

• Providing additional support to employee representatives who will not necessarily have the skill or knowledge to effectively contribute to collective consultations.

We look forward to engaging with the government on a set of workable proposals to address the issues identified.

We look forward to engaging with the government on a set of workable proposals to address the issues identified.