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 Director of Insolvency at ICAS.

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 “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:

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:

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