Delivering Redundancy to Employees in a CVA
John A Waller
What if unable to afford to pay redundancy – may a CVA help?
Carrying out redundancies for a limited company in a Company Voluntary Arrangement (CVA) explained) is without any financial burden to that company. The UK Government will pay out that cost of redundancy, freeing up necessary cash for the business’s survival and maintaining jobs for those to remain employed. A CVA is beneficial if your business is viable again. For example, once a reduction has been taken with its workforce, which was initially unaffordable without a CVA.
Once a limited company enters a cash flow meltdown, the highest cost abruptly hits you! One of the highest costs usually for a business is employees. Sadly, a decision to cut employment may be critical to saving the business. However, if you do not act, you may cause everyone to lose their jobs and the company to slip into a Creditors Voluntary liquidation. Further, detailed reading is available by reading ‘I can’t pay employees anymore‘, and ‘employee guide to insolvency‘.
If, however, the company enters into a company administration, you lose control of the process.
A CVA and claiming Redundancy
A CVA aids employees to gain redundancy once applied by the Government. Consequently, arrears of salary and holiday pay are partially paid to those unpaid, however only up to a maximum of £544 PW. Please read ‘employees rights when a company is insolvent?‘ to assist you.
Rishi Sunak introduced the Coronavirus Job Retention Scheme. In April 2020. As part of a UK government-backed package of support to protect UK jobs and businesses, enabling employers to receive a cash grant of up to 80% of furloughed employees’ wages, capped at £2,500 a month, who otherwise would have faced lay off during the present Pandemic.
However, when Furlough ceases on June 30th 2021, employers will be responsible again for paying out redundancies.
More details on the help available to companies affected by the Pandemic can be found reading. ‘Help for UK Businesses Affected by Coronavirus (COVID-19) Pandemic and Lockdowns’.
If your business is in Administration?
If the business is in a company administration, then the administrator may make everyone redundant in one go. However, as a director, you have no authority over that decision.
In the past, directors and IPs used pre-pack administrations to shed staff by transferring the assets, but not the old company’s employees to a new one, while directors put the old company into administration. However, TUPE does relate to the new company having to take on the employment contracts of the old one. In addition, if the company has discharged its debt and sold out, then it is difficult to maintain it must cut staff.
Delivering Redundancy to Employees in a CVA and a Case for unfair dismissal over COVID-19?
Should a case of unfair dismissal be brought, the new company will potentially remain liable if warded for compensation.
If employees commence unfair dismissal, then any claim, if successful, will rank as unsecured debt within the precess of the CVA.
What are the employee’s rights once made redundant in a CVA?
Once the CVA approved, employees can commence a claim from the Redundancy Payment Office (RPO) for:
- A maximum of eight weeks unpaid wages;
- Six weeks Holiday pay;
- Payment in lieu of notice;
- Statutory redundancy subject to having two years or more continuous service at the point of liquidation;
- Unpaid pension contributions.
The maximum extent of compensation remains at £544 per week of pay.
For more information on making employees redundant, please contact a member of the team at HBG Advisory.
You may find contact details at the foot of this web page.
Be aware that directors can dismiss employees without redundancy. For further reading, please view the Government site.