Sadly, the news that a high street retail business is going into administration has become a regular press feature in the current contracted market. So just what does "administration" mean and what are the implications of this process for employers?
What does administration mean for business?
Despite public perception, when a company goes into administration this does not always mean "game over" for that company. When companies are in financial trouble administrators are appointed to take control of the company with the primary objective of saving the business, which will often entail internal restructuring and job losses. If saving the business is not possible, the administrators strive to achieve a better result for the company's creditors than if the company were wound up without first going through administration. This will inevitably involve sales of the company's assets (and perhaps eventual liquidation).
What role do employers play?
For employers, the primary concern in administration will be to maintain employee relations and work with the administrators to manage job losses. However, once administrators are appointed, employers hand over control of the company to them. It is clear that, from a Human Resources/Employee Relations perspective, there are likely to be conflicting interests between the administrators and the employer throughout the process.
Employers are not authorised to make decisions about the future of the company once it is in administration and are instead obliged to cooperate fully with administrators to sympathetically implement any changes that must be made.
Option 1: Save the company as a going concern
Administrators act as an agent for the company, so their appointment will not terminate the employment of the business's workforce. Staff will usually receive their salary as usual, but it will be important to manage employee morale once administration is announced. Ensuring that staff are well informed and their expectations are managed is key to minimising the risk of employees taking to social media sites to voice their discontent.
Where an administrator proposes to make 20 or more employees redundant within a 90-day period, employers and administrators will need to work together to ensure that the company's collective consultation obligations are met. The fact that the business is in administration will not be sufficient for the company to rely on the "special circumstances" defence for any failure to comply with its collective consultation obligations. Therefore, poor management of staff during an administration process can result in liability for a "protective award" in the employment tribunal of up to 90 days' pay per employee.
Option 2: Sale of the business' assets
Where a company is in administration, the administrators may sell company assets to repay creditors, which may trigger the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). TUPE contains certain concessions where the transferor is insolvent in the hope that it will encourage the rescue of more businesses. For example, employees of a business in administration can expect to transfer to a purchaser but, contrary to the ordinary rules, it is potentially easier for an administrator or a transferee to vary transferring employees' terms and conditions of employment.
Regardless of which route administrators adopt, the process will be unsettling for the workforce. HMV bosses were recently left red-faced when employees took control of the HMV Twitter page, posting tweets about the "mass execution of loyal employees" to 61,500 followers, with #hmvXFactorFiring trending as a result. This serves as a powerful reminder to employers that an inclusive process will benefit not only the staff affected but also protect the value in the company's brand.
Rebecca Lawton, solicitor at law firm Charles Russell