It can be cheaper for firms to pay a fine for breaking the rules, rather than to give workers the proper notice of redundancy, the Business, Innovation and Skills committee of MPs and the Scottish Affairs committee said.
The parliamentarians called for detailed talks between the government, businesses and unions on how to tweak the system in favour of workers, when a firm goes under.
“At the moment the rules on insolvency, on everything from how and when information is shared with employees, to the order in which creditors are paid out, are skewed too far to the advantage of investors, directors and management,” said Ian Davidson MP.
“The system provides perverse incentives to withhold information or to skip proper consultation processes in contravention of the law and at a high cost to workers struggling to cope with the loss of their livelihoods.”
Business group the Institute of Directors called for more comprehensive guidelines for firms on how to manage insolvency.
“Insolvency can be very painful for everyone involved, particularly when it leads to large numbers of people losing there jobs,” said the IoD’s Oliver Parry.
“There is a difficult balance to be struck between trying to save the company, and giving staff, suppliers and investors adequate and timely information.”