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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

17 DEC 2009

Mr Ian Lucas MP's letter to IPs on their duty to consult employees facing redundancy

Previously on this blog I critically examined a letter that Mr Pat MacFadden MP had written to Insolvency Practitioners (IPs) regarding redundant employees and the need for consultation. His successor as Minister of State at BIS with responsibility for insolvency issues, Mr Ian Lucas MP, has also now written to IPs on the same issue. His letter of the 20 November 2009 notes:
"I write further to the letter sent to you on 4 March 2009 by Pat McFadden, in respect of the duty to consult employees facing redundancy. I am writing, as the Minister now responsible for insolvency law and practice, to underline the importance of this duty and its implications.

I appreciate that there are many pressures and responsibilities on those administering insolvencies. One particular responsibility, which in my view it is vital to handle well, is the redundancy process. This needs to be carried out sensitively and with due regard to the interests and legal rights of employees. The Government expects that a workforce should be consulted as soon as practicably possible if collective redundancies are proposed, as required by the employment legislation referred to in the attached annexe.

Although insolvency practitioners have been reminded of the requirement to comply with these legislative provisions, there is a continuing concern that these obligations are not being met. I am well aware that an administrator has a duty to act in the interests of creditors but, as explained in the annexe, this does not mean that there is a conflict between this and complying with the relevant requirements in respect of employees.

I have recently written to all the recognised professional bodies reminding them that where an insolvency practitioner had contributed to a breach of the consultation or notification provisions, they have a responsibility to consider that conduct and, where appropriate, take disciplinary action. I have also asked my officials to monitor cases where protective awards are made as a result of the conduct of an insolvency practitioner, and monitor what action, if any, is taken by the relevant recognised professional body.

Breach of the duty to notify the Secretary of State is also a criminal offence. The Redundancy Payments Service will investigate and refer appropriate cases for consideration for prosecution where there is a clear breach of the requirement to give the notification to the Secretary of State. The maximum penalty on conviction is a fine of £5,000.

Pat McFadden's letter made reference to the services of Jobcentre Plus in providing assistance to employees who are facing possible redundancy. I am pleased to note R3, the insolvency Service and Jobcentre plus signed a Memorandum of Understanding on 22 October 2009 and I hope that insolvency practitioners will adopt the principles in that Memorandum. "
As with Pat MacFadden's letter, there are a number of points that can be made in response to the minister's recent missive. First, what is the definition of consultation? Would telling people on day one of an appointment that they are going to be made redundant constitute consultation? If an officeholder goes in to an ailing company at 9.00am with no cash to trade how on earth could he properly consult with employees in terms of the ninety day period? Telling people that they are going to be made redundant is not consultation. But what other choice does an IP have? If there is no cash he cannot "consult" in the wider sense.

Secondly, the employment tribunals tend to err on the side of employees (with union backed litigation) and IPs tend not to defend these cases, as a challenge is a direct expense and comes out of the pot for creditors. If IPs challenge everybody looses. The employee gets the ninety day period by default unless it is challenged. The ninety day awards will almost invariably never be paid as they rank as unsecured creditors. The whole area starts to fall into disreputability as these claims will never be paid. The solution is for Government to fund the awards properly (where there is no money in the company).

Redundancy needs to be handled sensibly and sensitively, but the bottom line is that if there is no money in the company there is little scope for real "consultation." There cannot be. The conversation is certainly already had between IPs and employees. To threaten IPs with criminal sanctions for breach of this circular conundrum seems to be more of a vote winner than a sensible point. How can IPs be penalised for a situation that has arisen before they were appointed? Surely the directors of the company are the officeholders who Mr Lucas should be aiming his sights at. This is of course if that is where he is coming from. IPs often do the best in very difficult circumstances.

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