In March 2015, under the Coalition government, there was a collective redundancy consultation for employers facing insolvency. The Insolvency Service has now published a summary of the responses received.

These indicate a number of issues, including the widespread belief that tensions between employment law and insolvency law inhibit consultation when a company is in formal insolvency, and that ‘meaningful consultation with a view to reaching an agreement, particularly on ways to avoid or reduce dismissals’,  is often not possible.

The responses also suggest there is uncertainty about when the requirement to consult and to notify begins, and over how long a consultation should last.

A lack of time and money was seen as a major inhibitor to beginning consultation by trade unions, employment and insolvency lawyers and insolvency practitioners.

For insolvency practitioners in particular, where there is no recognised trade union or employee representative in place, the process for electing employee representatives at a point when a company has entered into an insolvency process was perceived to be onerous and prohibitive to rescuing and preserving the value of the business.

The majority of respondents (79%) recognised the benefits of consultation and notification where a company needs to make redundancies in an insolvency situation. However, a large proportion within this majority group also qualified their response by saying that the benefits were of limited value unless the business was to be sold as a going concern or was to continue trading in some form.

While many respondents considered that consultation could work where a company was solvent, nearly all respondents argued that by the time a company enters into insolvency proceedings, it is too late to consider options. By that stage all possible alternatives to redundancy would already have been explored and therefore other possible outcomes would be very limited.

Trade unions also argued that often insolvency practitioners did not attempt consultation even where some limited consultation was possible.

In addition, several respondents expressed the view that, in insolvency situations, the effectiveness of protective awards was undermined because the burden for failing to consult falls on creditors and taxpayers. There were also some concerns that disclosure about a company’s financial difficulties could undermine rescue and survival of the business.

The summary  notes: ‘The responses showed that there is a case for government to look further at options that will clarify what is required from employers and their representatives in an insolvency situation and at the same time increase the effectiveness of sanctions for noncompliance.’

There are now to be further discussions to explore how consultation can be improved where collective redundancies are proposed in insolvency or near insolvency situations.

Phillip Sykes, president of insolvency trade body R3, said: ‘We need to start working on solutions now, not next year. This is an issue that is affecting business and job rescue today.

There is a growing concern that the difficulties risk reducing the number of business rescues and increasing the number of liquidations instead

‘There is a growing concern in the profession that uncertainty over redundancy consultation requirements and their timing in insolvencies risks reducing the number of business rescues and increasing the number of liquidations instead.

‘The insolvency profession has first-hand experience of the difficulties caused trying to comply with both insolvency and redundancy consultation requirements, which are sometimes at odds. We have made a series of proposals for reform to government over a number of years, including simplified reporting requirements. We want these to be adopted.’

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