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Restructuring for a Positive Future

The current theme of the business community seems to be one of managing change and endeavouring to be an agile business. I have no doubt that actions which would have normally taken months of discussion and decision-making, particularly with remote and flexible working, were implemented in businesses throughout the UK in record time and with minimal resistance. It has certainly proven the naysayers wrong!

I recall going to a meeting some time ago where Graeme Chaplin, the local Bank of England representative, stated a need for more growth and increasing productivity. At that time unemployment was at a very low level and Graeme was indicating the need to embrace technology to do things quicker and better.

However, as businesses review how they work and look to reorganise, it may be inevitable that a certain amount of downsizing will occur to align themselves with the post Covid market. Unemployment is forecast to rise by as much as 9%. This is probably linked to the Coronavirus Job Retention Scheme (CJRS) coming to an end and short term funding boosts running out. Given the tough six months we have endured, how many companies will actually be able to fund any redundancies?

At the end of July, the government brought in new legislation to ensure furloughed employees receive statutory redundancy pay based on their normal wages, rather than a reduced furlough rate. This is a better outcome for the employees but it will increase the costs of funding redundancies too.

There is support for redundancy costs. HMRC has recently clarified that CJRS grants can be used during a redundancy consultation period and CJRS has been updated so that it can support either contractual or statutory notice periods which are served on furlough. It should also be possible for accrued holiday to be taken during a furlough leave period, provided of course that furlough was not just for holiday. However, it cannot be used for pay in lieu of notice or to support redundancy termination payments.

For many years now, and perhaps unknown to many businesses, is the ability for the Redundancy Payments Service (RPS) to issue a Loan for Financial Assistance. I am not aware of many businesses using this form of support and the few cases I have been aware of there have been complaints at the cumbersome process and that it is slow. From the government perspective it seems obvious to offer such support. It is better to provide a loan to make a few staff redundant rather than a company entering into an insolvency process and by default all the staff being made redundant and being funded from the National Insurance Fund.

In truth, if a business does not have the cash flow resources to fund the redundancies and its primary lenders have also refused to give it further financial support (which would be over and above any existing credit lines together with any CBIL or BBL) then the RPS loan is the only other option which avoids an insolvency process.

Moving away from the topic of funding redundancies, directors must also have regard to the process and avoid the temptation to make a quick decisions to stem further losses. Remember that redundancies must be carefully considered and there is a formal process that must be followed. In this respect Acas has provided some useful guidelines on the redundancy process, as follows:

  • Make sure that there is a genuine redundancy situation. This means there is an actual or intended closure of the business, there is an actual or intended closure of the business at a particular workplace, or the requirements of the business for employees to carry out work of a particular kind have ceased or diminished, or are expected to cease or diminish
  • Ensure that there are meaningful redundancy consultations. This will involve discussing your planned changes with each employee individually who could be affected. You must get their ideas and feedback, and any plans must not be finalised at this stage, allowing you to include any of the employees’ relevant suggestions or ideas
  • If the plan is to make 20 or more employees at the same workplace redundant within 90 days, you must follow ‘collective consultation’ rules. This means you must consult any recognised trade union or elected employee representatives as well as consulting employees individually
  • Any employees who are to be made redundant must be selected fairly and without discrimination. There must be objective and non-discriminatory selection criteria utilising a fair scoring system
  • There must be due consideration to suitable alternative employment and other alternatives to compulsory redundancy. It’s vital that all the ways in which redundancy could be avoided have been carefully considered
  • No redundancy notices should be given until the full consultation process is complete
  • An appeals process should be set up for employees who feel they have been unfairly selected

The team at BLB Advisory regularly works with businesses that are facing difficult choices when it comes to changing the way they do things. Engaging with us doesn’t mean that it will result in a formal insolvency. We exhaust all possible options on recovering a business and returning it to good health. If you would like us to conduct an informal review of your options, please do not hesitate to get in touch.