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October 2012
New Workplace Pensions Regulations & Changing Employment Terms
September 2012
Luxury Goods And Services, Website Contracts and Cookies
August 2012
The Olympics and Legal Implications of High Profile Events
July 2012
Hedging, LIBOR and Why Canadian Banks Are Setting Benchmarks
June 2012
May 2012
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April 2012
Hotels
March 2012
Marketing
February 2012
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January 2012
Contract Law
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Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics
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Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics
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Find Previous Featured Articles | |
October 2012
New Workplace Pensions Regulations & Changing Employment Terms
September 2012
Luxury Goods And Services, Website Contracts and Cookies
August 2012
The Olympics and Legal Implications of High Profile Events
July 2012
Hedging, LIBOR and Why Canadian Banks Are Setting Benchmarks
June 2012
May 2012
Employee Incentives and Share Option Schemes
April 2012
Hotels
March 2012
Marketing
February 2012
International Services
January 2012
Contract Law
Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics |
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Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics
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Visit Our Archive for previous newsletters covering Hospitality, Recruitment, Intellectual Property, Food & Drink, Commercial Property, Employment, Hotels, Restaurants, Start Ups and many other topics
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Welcome to our February Newsletter!
The theme this month is Cutting Costs and legal considerations when putting some of these plans into action, especially when employees are involved. As we have recently seen, some of our most popular stores and brands are disappearing from the High Street, mainly due to intense competition, especially from internet suppliers. Some of the most recent companies to suffer under these circumstances are Clinton Cards and HMV, who both went into administration over the last couple of months. We have also seen a rare occurrence, the appointment just last week of KPMG as administrators of a national law firm.
However, it's not all doom and gloom! Just last week, Antic Limited pubs have been bought out of administration by a newly formed business, Gregarious Limited. The chain of pubs went into administration last month, but due to the assets and freehold of 12 out of their 14 pubs being bought, it is now out of administration.
Our first article this month focuses on Insolvency and the options employers have if they face difficulties within their business. We also distinguish between the two main insolvency routes, namely Administration and Liquidation. What do they actually mean and what is the best method for your company?
Our partner of the month is a firm we work very closely with when it comes to insolvency matters. Martin Widdowson is an Audit Partner at Brebners, who holds
a Corporate Finance qualification with the Institute of Chartered Accountants of England and Wales (ICAEW). He also acts as an Insolvency Practitioner and regularly takes on insolvency appointments.
Our second article focuses on the topic of Redundancy. One of the biggest overheads of any company is staff, and when a company is struggling financially, this is usually one of the key areas where cost cutting has the greatest impact. We cover redundancy options, what you need to consider when dismissing an employee, and top tips to consider for a fair dismissal.
In addition, we touch on the subject of Compromise Agreements which usually go hand in hand with such situations. We have also updated our website with a new page focusing specifically on this topic and how we can help should such a situation arise, click here to view.
Finally, our new company restoration service has been adopted in a timely manner with a large number of enquiries from companies having found themselves in the unfortunate position of having being dissolved with valuable assets still in the name of the company. Please visit our website page for further details.
If you have any queries or need advice in relation to any of the matters set out in this newsletter or any other legal issues, do not hesitate to call us on
020 3102 6372 or e-mail us at enquiries@fortunelaw.com. We are always happy to help.
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Shainul Kassam
Fortune Law Solicitors
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Partner of the Month: Brebners
www.brebners.co.uk
Martin Widdowson
Insolvency Practitioner
 | | Martin Widdowson |
"I am the Insolvency Practitioner at Brebners. We are very pleased to assist Fortune Law who are also clients of our firm.
The specific areas of advice given are:
- protection of assets against claims made against directors as a result of signing personal guarantees;
- advising on options in respect of personal solvency;
- how to manage debts owing to various family members;
- how to protect the matrimonial and family home;
- avoiding personal bankruptcy
I specialise in solvent members voluntary liquidations which can be a very useful tax planning tool in certain circumstances. The recent changes in legislation and the withdrawal of ESC16 has increased the need for a planned solvent liquidation in certain circumstances. I also take Bankruptcy cases from the Official Receivers' rotas and have acted as Trustee in a large number of very varied cases.
Due to the close relationship developed between Fortune Law and Brebners I am often asked to consult with their clients in times of financial difficulty and to prepare an unbiased review of the financial position and a critique of the options available. In certain instances an insolvency appointment may follow if appropriate, but notwithstanding this we try between the two firms to offer Fortune Law's clients both a legal view and a financial view to solving their problems."
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Insolvency 
As we have seen in the news over recent months, insolvency remains a significant issue in our current economic climate. In circumstances when an individual or business has insufficient assets to cover their debts, or are unable to pay their debts when they are due, they are deemed to be insolvent.
The recession has driven more companies into financial difficulty and raised the profile of specialists called into act as administrators or receivers to those facing troubled times. Ordinarily, a company would attempt to keep insolvency practitioners at bay by first trying to convince bankers and other creditors to agree to more flexible terms, but this has not always been possible.
If such discussions fail to reach a break through, administration and receivership then become the most likely options for troubled companies. There are crucial differences between the two main ways of treating companies unable to service their debt repayments.
For a company, there are various solutions to this depending on the circumstances:
- Administration - the court will appoint administrators in order to protect a company from any legal action. The key objective is to keep the company operating in order to achieve the best possible returns for creditors.
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Liquidation - if a company cannot keep operating, liquidation may be the only option. This is intended to release as many assets as possible to pay off creditors.
- Receivership - administrators are appointed by the court, whereas a receiver is called in by a bank or other creditor who has a charge over all or most of the assets of a company.
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Voluntary arrangement with creditors - this may assist a company to address its financial difficulties. It is a compromise, or other arrangement, between a company and its creditors.
Administration and liquidation are two of the most common solutions available to companies. In brief, if a company goes into administration, there is an attempt to rescue it by locating buyers or selling off parts of the assets. Liquidation however normally involves closing down a business, and selling off all its assets to satisfy creditors.
Administration
In 2012, almost 4,000 stores and 54 retailers went into administration and so far 2013 is continuing the trend. Key household names comprising high street retailers who have suffered recently include Blockbuster, Comet, Jessops, HMV Peacocks, JJB Sports and Jane Norman with the latest victim being Republic which went into administration just last week. Administration stops any legal action or process against a company from proceeding, unless the Administrators or the English Court give permission. This means that creditors cannot take legal action against a company in administration to recover outstanding amounts. The process is designed as a process for the restructuring and rescue of insolvent companies, but which often leads to the sale of business and assets, in many cases on a going concern basis.
When a company enters administration, an insolvency practitioner is appointed as the company's administrator. Only persons qualified to act as insolvency practitioners under the Insolvency Act 1986 may act. The administrator takes over the control of the company's business and assets from the company's directors, in order to achieve one of the statutory purposes of administration.
INSOLVENCY PRACTIONER: In order to qualify, an insolvency practitioner must be an individual who is authorised to act as an insolvency practitioner by a recognised professional body, which has practice rules specifying the matters to be taken into account in deciding whether a person is fit and proper to act as an insolvency practitioner. In practice, insolvency practitioners are almost always accountants.
A company may enter administration in one of two ways:
- The court route: by an order of the Courts, made in an open hearing
- The out of court route: appointment by the company or its directors, or by a qualifying floating charge holder
Liquidation
Liquidation or "winding-up" is a court-based procedure under which the assets of a company (which is usually in financial difficulty) are realised and distributed to creditors in the order provided for under the Insolvency Act 1986 (IA 1986) and any surplus returned to shareholders.
There are two modes of winding up: compulsory liquidation following a court order and voluntary liquidation following a resolution of shareholders. At the end of the liquidation the company will be dissolved. There is no freeze on the enforcement of security (where appropriate) but there is a stay on the commencement or continuation of proceedings against the company without the leave of the court.
There are two types of liquidation:
- Compulsory: by order of the court.
- Voluntary: by resolution of the company.
There are generally two forms of voluntary liquidation:
- Members' voluntary liquidation: where the directors are willing to give a statutory declaration of solvency. A members' voluntary winding up is started by the members passing a special resolution.
- Creditors' voluntary liquidation: where the directors are not willing to give a statutory declaration of solvency. A creditors' voluntary winding up is started by the members passing a special to the effect that the company should be wound up and is followed by a creditors meeting.
In either a compulsory or voluntary liquidation, a liquidator is appointed to collect in the assets and distribute them in a prescribed order and has certain powers for this purpose. A liquidator acts primarily in the interests of unsecured creditors and members. When the assets of the company have been realised and the liquidation is otherwise complete, the liquidator will distribute the funds in accordance with the statutory order of priority. Unsecured creditors will receive a dividend. In a lengthy liquidation, the liquidator may be able to pay interim dividends.
A liquidator also has a duty to investigate the reasons for the failure of the company and to report on its directors. The liquidator's costs of fulfilling his duties will be met from the company's assets, according to the statutory order of priorities.
If you need any advice on your company or would like to be put in touch with an insolvency practitioner, Fortune Law has the necessary expertise to advise and help. Please get in touch by telephone on 020 3102 6372 or by email at enquiries@fortunelaw.com
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Redundancy 
A situation in which an employer decides to reduce the number of its employees, either within the business as a whole, or within a particular site, business unit, function or job role is known as redundancy. Genuine redundancies occur when employees are dismissed because their job no longer exists.
This may occur when:
- new technology makes a job unnecessary
- an employer needs to cut costs and reduce the number of staff
- the employer needs to close the business or a particular division.
Last week it was announced that Barclays were dismissing 1,800 employees by way of redundancy, as well as Santander claiming they are to make 800 investment advisers redundant which had been postponed since the end of last year. In addition, John Lewis have made some surprise job cuts by terminating the contracts of 325 managers in their new revolutionary plan to cut costs (The Guardian, 13 February 2013). Any change in personnel can be disruptive, none more so than the threat of redundancies. However, good communications between management and employees can often help an organisation get through the process with the minimum of pain.
The Law
An employee with at least two years' service is entitled to a statutory redundancy payment in addition to any contractual redundancy payment or other benefits that their employer may provide. The amount of the statutory redundancy payment is increased in February each year according to ACAS and HMRC.
There may be also be a contractual right to enhanced redundancy pay set out in the employee's employment contract or in a collective agreement or a redundancy policy that has been incorporated into the contract by the Company's conduct or practice.
Employees who are dismissed without being given full notice in accordance with their contracts will also be entitled to payment in lieu of notice.
Selecting employees for redundancy
This can be a tricky area to be navigated especially if some employees carry out a range of roles or move between departments or teams. Employers should try wherever possible to use objective criteria, precisely defined and capable of being applied in an independent manner. This is to ensure that employees are not selected unfairly. (For tips on avoiding unfair dismissal see our final article below).
Such criteria must be consistently applied and be objective, fair and consistent. Basing any selection on skills or qualification should also help to retain a balanced workforce appropriate to the organisation's future needs. Examples of such criteria:
- attendance record
- disciplinary record
- skills or experience
- standard of work performance
- aptitude for work.
We are specialists in employment law and related matters. If you have an issue involving an employee contract or need to put in places contracts, policies or staff handbook sand ensure all points are covered, Fortune Law has the necessary expertise to advise and help. Please get in touch by telephone on
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Dismissing An Employee
If you are an employer you should be aware of the key issues that your business should consider when dealing with poor performance and, more generally, when dismissing an employee for this or other reasons. Failure to follow the correct procedures could have serious financial and commercial implications for your business, including unlimited damages in some cases.
We set out below some good management practices to help avoid potential claims relating to a dismissal, for example:
- Making sure that any employee-related policies and procedures your business has are always followed (for example, an equal opportunities policy).
- Addressing any issues with your employees as soon as they emerge. Generally an employer's position deteriorates the longer the delay;
- Thinking carefully before sending any e-mails to your employees (for example, never send any aggressive e-mails as they could be used against your business by an employee in a future claim).
Before consulting with employees or dismissing for redundancy, an employer must be satisfied that the statutory definition of redundancy is applicable. Where an employer is undertaking a re-organisation falling outside the definition of redundancy, it may be able to rely on "some other substantial reason" as a reason for any dismissals resulting from that re-organisation.
Employment law is constantly changing and the introduction of new legislation has increased the complexity of the process that you must follow to avoid claims being brought against you as a result of dismissing an employee. If you are facing poor performance issues or need to dismiss an employee for other reasons, please see our Top Tips on fair dismissals below.
Consider a compromise agreement
A compromise agreement is a legally binding agreement entered into by an employer and an employee either agreed during the course of employment to take effect on termination or following the termination of an employee and which brings their employment to an end. Employers have for many years now increasingly used compromise agreements as a mechanism for preventing potential complaints being brought to an employment tribunal. If an employer is proposing to make a payment to employees in addition to any statutory or contractual entitlement, it is sensible to consider making such payments conditional on their entering into a compromise agreement, so that the employees waive any claims against the employer. However, employers should note that a compromise agreement requires the dismissed employees to obtain independent legal advice in relation to their dismissal in order for the compromise agreement to be legally binding. For more details on this please see our new website page here [link] for more information.
Even where an employer has followed a fair process, many still prefer that employee signs a compromise agreement to ensure there is no possible comeback. Very few processes are absolutely watertight and many individuals who are unaware of their employment law rights at the relevant time may have second thoughts after they have left. There is a period of three months from the date of termination of employment in which to make a claim to an employment tribunal.
Top Tips - Fair Dismissal
We have highlighted the key issues that your business should consider when dealing with poor performance and, more generally, when dismissing an employee for this or other reasons. Failure to follow the correct procedures can have serious financial and commercial implications for your business, including unlimited damages in some cases.
Your business should follow good management practices to help avoid potential claims relating to a dismissal:
- Ensure you have a proper contract of employment in place which will protect you in the event of poor performance and also termination of the employment relationship.
- Make sure that any employee-related policies and procedures your business has are always followed to avoid claims for unfair discrimination (for example, an equal opportunities policy).
- Address any issues with employees as soon as they emerge. Generally an employer's position deteriorates the longer the delay.
- Think carefully before sending any e-mails to your employees (for example, never send any aggressive e-mails as they could be used against your business by an employee in a future claim).
- In many circumstances an informal meeting with an employee can resolve a problem. However, your employees must be made aware that a formal process could be used if an issue remains unresolved. The process of formally disciplining an employee is complex, so you should take legal advice before you start. Keep records of any e-mails, letters, conversations or meetings (formal or informal) that your business has with your employees relating to their performance.
- Conduct regular appraisals with your employees to enable your business to give an honest assessment of their performance and allow them to raise any concerns. And do not give flattering performance reviews if they are undeserved. They could make it more difficult to dismiss an employee in the future.
- Use probationary periods effectively. If your business has any legitimate concerns about a new employee, you should position yourself so you are able to extend the period or dismiss them at the end of it.
- Employees should not be sidelined, bullied or shunned in order to get them to leave. If an employee can demonstrate that they resigned because of your business' conduct, they could have a claim for constructive dismissal.
- Be very careful if you think that stress could be a reason for an employee's poor performance (for example, they are struggling to cope with an increased or challenging workload). In these circumstances you should take legal advice.
- Fully investigate any claims made by or against an employee before making any decision.
- Do not assume that your business can dismiss an employee simply because their fixed-term contract has come to an end. The employee may have a claim for unfair dismissal. Unfair dismissal is any dismissal that is not for a fair reason or does not follow the correct procedure.
- Always take any employee grievances or claims raised against your business seriously. You must be particularly careful if an employee has raised a grievance or claim in the past. You should make sure that any further allegations are dealt with fairly, to avoid the risk of them bringing a victimisation claim.
- Sometimes, from both a practical and commercial point of view, it is simplest to try to reach a financial agreement with an employee to leave your business. You should take legal advice before you enter into any negotiations. If an agreement can be reached, to protect your business, you should ask your employee to sign a compromise agreement which is an agreement, usually in return for a fixed sum of money, in which an employee specifies that they will not bring a claim against their employer.
- There is no obligation on your business to provide a reference if one is requested. However, if you do provide a reference (oral or written) for an employee you must ensure that it is accurate. For example, do not give a good reference to an employee whom you have dismissed for poor performance, as this could lead to a claim being brought against your business.
We are specialists in employment law and related matters. If you have an issue involving dismissing an employee, Fortune Law has the necessary expertise to advise and help. Please get in touch by telephone on 020 3102 6372 or email enquiries@fortunelaw.com
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