What happens to your employees during insolvency proceedings?

Insolvency can be a tense time for any business but is often especially tough for your employees. They may not understand the impact insolvency proceedings have on a company and the future of their roles. If you work for a big company, where news of its financial state is reported in the media, it is vital that you communicate with your staff to help eliminate some of the worry or prepare for what is to come. We’ve broken down exactly what happens to your employees during the different types of insolvency proceedings below.

Company Voluntary Arrangement (CVA)

A CVA is a formal agreement whereby the company arranges to pay back what it owes to its creditors often in monthly instalments. This can involve a degree of business restructuring, which might mean the business considers redundancies for some roles in a bid to save money. However, as this is a recovery method, the company will hopefully continue to trade long term.

Administration

A company enters administration when it is protected from further legal action by its creditors. At the start of the process an administrator is appointed often to try to rescue the business by restructuring any unprofitable elements of the business. This can often mean some redundancies, and therefore uncertainty for employees. However, the aim is to recover the business and continue trading, so not all employees will be made redundant.

Liquidation

Liquidation is the process where a business is brought to an end, either by its creditors, shareholders or administrator. Usually this occurs where it has been decided that the company is not salvageable. In this case, the assets of the company will be sold and all employees will be made redundant.

If you’re worried that your business may become insolvent, or you’ve already begun the process, you should seek advice from a licensed insolvency practitioner as soon as possible. At Chamberlain & Co, our experienced practitioners will work closely with you to make sure they give you the best advice for your business. For more information please give us a call on 0113 2420808 or contact us here.