There are indicators employees may notice when a company becomes insolvent. Such as being “on stop” with suppliers, or receiving wages after the due.
It’s a difficult conversation for any individual to have with an employee. Whether they are a company director, a sole trader, or even an experienced insolvency professional.
Nobody likes to be the bearer of bad news, a sad fact is more and more of us experience redundancy either directly, or through colleagues or family members. Companies preparing for a terminal insolvency procedure, such as Creditors Voluntary Liquidation, often have employees to be made redundant.
Directors and business owners should recognise the workforce can often be the back bone of a company. They should be treat with respect and integrity however, there is often a commercial angle to consider. This is in order to be able to maximise the value of a company/business and its assets. It is difficult to deal with these matters taking into consideration an ethical, legal and moral point of view.
In an ideal world, employers would be open and transparent with their employees from the outset. So they can make sure employees are fully aware of the circumstances.
This may be relevant for turnaround strategies and Company Voluntary Arrangements, where although a company may continue to trade, there may be significant changes to the company and its business model to enable it to return to profitability. This can include restructuring the company’s payroll obligations.
There are indicators employees may notice when a company becomes insolvent. Such as being “on stop” with suppliers, or receiving wages after the due date. Employees that handle the incoming post may become concerned with final demands for payment and other threatening correspondence. Without full knowledge of the facts, employees may jump to their own conclusions regarding the future of the company; a result of which could be widespread low morale and a lack of motivation. Employers that keep their staff “in the loop” could benefit from a workforce willing to pull together and demonstrate loyalty to employers who have engaged staff in the process.
However, some circumstances require the cooperation of the employees to ensure the completion of projects and the preservation of the goodwill of a company prior to an insolvency event. A counter argument could be staff who do not know there are problems will continue to carry out their duties in the usual manner. This will ensure there is no disruption to the day to day running of the company.
The legal basis for notifying employees of insolvency proceedings varies depending on the type of insolvency. Employment law can be a minefield, potentially resulting in tribunal related claims from employees. A licensed Insolvency Practitioner can advise you on your legal obligation in respect of dealing with the employees of a potentially insolvent company.
By: Karis Hodgkinson