The collapse into administration of King & Wood Mallesons’s European arm has left creditors enraged, and competitors salivating in the business and legal press. But most sympathy was reserved for its staff, particularly after news that the firm’s bank had rejected a proposal to release funds to pay January salaries.
This highlights how vulnerable staff are in insolvency situations. It’s hardly surprising that they resort to raiding the canteen and stationery cupboards (many will remember Lehman Brothers desk toys being sold on Ebay by enterprising former employees). And with economic uncertainty on the horizon, there may well be more large-scale business failures in the near future.
If you’re a high-billing executive, you can simply jump ship early with some favoured acolytes. But what can you do if you’re not one of the select few?
Once administrators are appointed, redundancies will be made very swiftly. So by far the best option is to try to secure the support of senior individuals who may be looking to move elsewhere before the situation reaches crisis point, and get them to take you with them or at least try to find you a job. A well-cultivated senior contact can also be a vital information source – chances are that they will know far earlier than most just how much trouble the business is in.
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Unfortunately, while clinging to senior leaders’ coat-tails can reap dividends for those in client-facing roles, this generally doesn’t include support staff – and employees on sick leave or maternity leave are often out of sight and out of mind. Excluding certain staff from a move may raise discrimination law issues – but bear in mind the tight three month deadline for notifying the Advisory, Conciliation and Arbitration Service (ACAS) of a potential employment tribunal discrimination claim, and in the meantime invest some time in updating your CV.
If your team moves en masse without taking you with them, you may have an argument that the Transfer of Undertaking regulations (TUPE) apply, meaning that your employment automatically transfers to their new employer. Proving that TUPE applies to your situation is not straightforward. You will need to show that the team constituted an economic entity which has transferred to another business but retained its identity.
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There is also a practical consideration – do you want to argue your way into working for someone who has decided that you’re surplus to requirements? However, it may be worth arguing that TUPE applies to try to secure a financial settlement.
Once administrators are appointed, they have 14 days to decide whether or not to keep staff on. After that, the wages of any staff whose contracts have been “adopted” by the administrators will be paid before the administrators’ fees. So administrators tend to make redundancies very swiftly, with minimal consultation.
Staff shouldn’t assume they will get all the money owed to them by the insolvent business. Up to £800 in wage arrears, plus accrued holiday pay and some pension contributions, are treated as “preferential debts”, meaning they are paid after the administrators’ costs and any fixed charges or mortgages, but before unsecured creditors. However, any further sums owed are treated as unsecured debts and often very little is paid out.
Employees can claim additional (capped) payments from the National Insurance Fund but, particularly for well-paid staff, these are unlikely to cover the full amount owed and can take a long time to process. Staff are often shocked to find that they are left high and dry in financial terms.
There’s no easy answer for staff in this situation, other than to make sure your CV is updated and that you have started looking elsewhere well before they begin chipping the sign off the door.