May 3 2006
If you are unlucky enough to work for an employer who goes bust, you might think that you are entitled to clear information about how much you will be paid for outstanding amounts due to you. Also, what are the chances that your job might be saved as a result of a takeover of the insolvent business.

Imagine how you would feel if the person brought in to handle the insolvency could only tell you - “I’m afraid we don’t know which bit of the law applies in this case. And even if we are able to find someone to take over the business, we do not know how much you are entitled to be paid now for past services and how much of the amount due to you will be taken on by the new employer. But if you would like to hold on for a few weeks, we can apply to the court to give us the answers.”

This is exactly the situation that exists as a result of new regulations brought in by the Government on 6 April this year.

There has been legislation in the UK since 1981 to protect the rights of employees where there is a transfer of a business to new ownership. The new regulations were intended (among other things) to clarify the position where a transfer follows the insolvency of an employer. Instead, they have created unprecedented confusion. This is because the regulations are drafted in such vague language that no one understands in which types of insolvency proceedings they are intended to apply, or what their effect is supposed to be. The situation is further confused by contradictory guidance issued by official departments, which suggests that the Government itself does not know the meaning of its own regulations.

This impression is strengthened by Ministerial responses to questions on the subject from insolvency professionals and others. When R3, the Association of Business Recovery Professionals wrote to Gerry Sutcliffe, Minister for Employment Relations and Consumer Affairs, to point out the difficulties raised by the regulations, his response was to concede that the meaning of the regulations was not clear, but that the scope for uncertainty would be reduced over time as case law builds up. Since clarity and certainty are essential requirements when negotiating a transfer of a business, this is hardly a satisfactory answer.

Ron Robinson, President of R3, said: ‘What the Minister’s reply amounts to is - yes, I know we got it wrong, but we’re going to leave it to the courts to sort out.” This is a wholly irresponsible approach to legislation. The Government should have made sure it got the law right in the first place. We will continue to put pressure on the Government to amend this legislation. In the meantime, there will be an unacceptable level of uncertainty, and much delay, while employees and creditors bear the costs of sorting out the consequences of the Government’s incompetence and complacency.’

Robinson, added: “This is the undoubtedly the worst piece of insolvency related legislation to come out of this Government, and the level of incompetence and complacency in dealing with employees rights is, quite frankly, staggering."