Administration: what next?

Home Industry News Administration: what next?

Redundancy resulting from administration causes distress to the workforce. There is plenty of research showing the negative impact on worker morale, motivation and productivity caused by this traumatic event. When a company goes into administration, the options narrow considerably, with redundancy often a likely and unfortunate outcome.

It was disappointing to read the recent news that Phones 4U are the latest company to go into administration, announcing the loss of more than 1500 staff due to the closure of 362 stores. It’s a sad situation. Fortunately a number of jobs were saved after administrator restructuring, resulting in EE agreeing to buy 58 of 720 stores for £2.5m, securing 359 jobs, and Vodafone picking up another 140 stores employing 889 staff. The sale of an additional 100 stores are currently up for negotiation with an undisclosed buyer.

There is now easy way to manage redundancy

All this bad news came off the back of Microsoft’s announcement that they were cutting another 2100 jobs as part of its plans to restructure its operations.

Insolvent companies go into administration in an attempt to avoid liquidation. Administration is a safety mechanism to allow the company to keep trading during difficult times. However an administrators priority is protecting the creditors and ensuring they receive any money owed by the insolvent company. Administrators try to quickly figure out whether the company can be rescued or whether is it better to wind it up and release any property value to pay back creditors. Option include selling part or the full company, or seeking new investment to pump much needed capital into the company. Insolvency is never good news for employees or employers, but if the administrators have been called in, there is a possibility that the company will keep trading and employees will retain their jobs

There is now easy way to manage redundancy. Advice for employers anxious about possible redundancies include:

  • Redundancies should be last resort. Can redundancy be avoided if the company proactively cut expenses, overtime and defers starting dates for new employees? Can alternative employment be found for affected employees?
  • If redundancy is unavoidable, it is advisable for the employer to identify a redundancy pool of affected employees. Selection should be made based on clear criteria justifying an employee’s inclusion. This should not be abused by weeding certain people out based on personal reasons, as this would expose the employer to possible accusations of discrimination. Poor performance is acceptable criteria as long as the employer can back it up with documentation evidencing performance concerns.
  • Employers should communicate redundancy plans to staff and offer further consultation. The minimum time for communication prior to redundancy depends on size of company, although it is always better to ensure as much notice as possible.
  • Employers should establish formal procedure on redundancy that lets staff know how the company plans to manage redundancy. Transparency is key.
  • Employees being made redundant should receive statutory pay, the level of which will depend on their service of employment

If a company in administration is undergoing acquisition by another company, employees may be protected by TUPE, enabling the employees to receive the same terms and conditions as previously earned, with continuity of employment under the acquiring company. However TUPE is only valid if the company retains its identity after the transfer, which is not always the case for a number of acquisitions.

If any of the issues raised in this article affect your business, please give us a call to discuss your options. We are happy to advise and find a solution that works for you and your business: 0800 912 7152