Insolvency - what HR needs to know

What does HR need to know about insolvency? Is it a specialist area best left to the experts in the field? The answer to that in a moment but first the reason why this is in the news is of course because last week to major high street chains collapsed. As the BBC reported, Arcadia, the owner of Topshop, Burton and Dorothy Perkins went into administration putting 13,000 jobs at risk. Sir Philip Green's retail empire had failed to secure extra funding to pay its debts after sales slumped during the pandemic. The group, which runs 444 stores in the UK and 22 overseas, said 9,294 employees are currently on furlough. The administration will give Arcadia breathing space from creditors, such as landlords for its shops or clothing suppliers, while a buyer is sought for all or parts of the company. Arcadia executives will still hold day-to-day control over the business. Just hours later Debenhams, the 242-year old department store chain, was facing liquidation. Administrators have already started the process of winding down Debenhams, after attempts to find a buyer failed. Stores will remain open until stock has been cleared, but then -- unless a last-minute rescue is achieved -- they will shut.Debenhams employs around 12,000 people at 124 stores around the country. Given the pandemic, with so many businesses facing this sort of crisis, back in September ran a very good articleon the various issues HR professionals should understand about insolvency - ‘Bearers of bad news: what HR needs to know about insolvency’. It points out that in cases of insolvency, when the administrators are called in, HR will often have an important role to play, yet for many HR professionals this will be a completely new experience. It also makes the very good point that whilst insolvency is a clear sign of a company's poor financial health, it doesn't have to be terminal because one of the statutory objectives of the administrators is to try to turn the company around so that it can be rescued as a going concern - so redundancies, whilst common, are not inevitable if a buyer can be found. In that event, a sale will happen and HR will have an important role to play. However, the key point is these sales happen very fast. To explain why, Ed Goodwyn who joined me by video-link:

Ed Goodwyn: "From a practical point of view, why these sales have to take place so quickly is because as soon as the liquidation proceedings are commenced there is a concern within the business that customers and creditors may catch wind of this and start to put pressure on the business. So if the business is to be sold, then speed is of the essence and very often one will see a sale move from appointment of administrator to completion in a matter of a few days. So it's really important for the HR professional to have the core data, as I was mentioning before, to hand ideally. Ideally he or she should have the core employment issues on a spreadsheet readily available to be handed over to the potential purchaser. That will include names, salary details, holiday rates, contract terms, etc. all the pricing information that a purchaser would need to know to make a quick understanding as to what the HR liabilities it will be taking on look like. In addition, there may be certain employees which the HR manager will need to consider whether there's any need for attention in the period leading up to the sale if these people are vital to the sale of the business and, again, the HR professionals are perfectly placed to help in those decisions. The last thing is HR should be in the front, in the vanguard, on communications. So while there will be obligations to formally informed consultant under TUPE, generally communicating to the business, particularly if there's a sale and light at the end of the tunnel, will be a key job for HR to get involved in.”

In case you missed it, last month Ed also advised on an issue that can arise when making pay cuts – specifically the PAYE trap employers can fall into when they fail to get contract variations agreed with employees before making the cut. You can find that article on the Outlaw website.