Can a company phoenix to avoid paying redundancy money?

[Wing Commander]

Hi all

Just wondering on a situation that is potentially relevant to me.

Small manufacturing company, approx 40 staff. Rent premises, but own reasonable amount of stock and equipment. I have a contract which entitles me to more than the statutory redundancy amounts, and I am just wanting to work out my exposure here.

Could the company phoenix (ie shut down completely, and restart under a new name), taking a much smaller set of staff with them, along with their equipment and stock? If they did this, and I was unlucky enough to not be taken with them, would I have any legal recourse to get the contract terms enforced?

Thanks

[StevieBee]

Yes the company can do this.

The administrator would liquidate the company and disperse what money is available in the priority order (IIRC) of Themselves, the government, banks and then creditors of which staff are included.

If a new company was formed by the original owners, your only recourse would be to prove deliberate intent to avoid payment, something that the Administrators would (or should) spot before pulling the plug.

[robbieduncan]

Equipment and stock would be assets to be sold by the administrators though? New company would not just get them. Of course the new company could buy the stock etc.

[StevieBee]

robbieduncan said:

Equipment and stock would be assets to be sold by the administrators though? New company would not just get them. Of course the new company could buy the stock etc.

Correct. The usual way is what's called 'Pre-Pack' administration where the company owners agrees to sell the company to another party prior to appointing an administrator to facilitate that sale and this would normally include the transfer of ownership of stock. It's a quick, neat and simple means to sell a company compared to stripping it and selling on the individual parts although the latter generally brings in more money.

[Boylston]

yes, happened to me. Was owed money (employee who resigned) and the Directors pre-packed the company just after I left. It happened effectively in a single motion on a day. The 'old' company was left with the debts under the control of the administrator.

In my case, even the administrators were 'done over' as well. At the time they took over there was enough money to cover their modest fees. After 4 months of a large amount of incoming complaints from a few employees and many shareholders, their bill was 3X the modest amount of money left for them. There was a formal complaint put into the Insolvency Service about the Directors. Also, the local police got involved. Ultimately nothing happened, but I bet the Directors had a few sleepless nights (well deserved). Hopefully this record will be used against them in the future.

I never got what was owed to me.

Simon

[Wing Commander]

StevieBee said:

robbieduncan said:

Equipment and stock would be assets to be sold by the administrators though? New company would not just get them. Of course the new company could buy the stock etc.

Correct. The usual way is what's called 'Pre-Pack' administration where the company owners agrees to sell the company to another party prior to appointing an administrator to facilitate that sale and this would normally include the transfer of ownership of stock. It's a quick, neat and simple means to sell a company compared to stripping it and selling on the individual parts although the latter generally brings in more money.

Thanks for your thoughts on this. So am I correct in thinking that if they were to pre-pack, and sell it essentially to themselves including stock, they just avoid liability for all their debts including staff wages etc?

What is to stop any company just loading up on debts, and then pre-packing it, taking all the good bits and leaving the crap behind?

Sorry if I am not getting this - it's considerably outside my sphere of knowledge!

[Sy1441]

Wing Commander said:

Thanks for your thoughts on this. So am I correct in thinking that if they were to pre-pack, and sell it essentially to themselves including stock, they just avoid liability for all their debts including staff wages etc?

What is to stop any company just loading up on debts, and then pre-packing it, taking all the good bits and leaving the crap behind?

Sorry if I am not getting this - it's considerably outside my sphere of knowledge!

Do the administrators not chose who to sell the assets to so would need to make solid commercial sense to do it.

[StevieBee]

Sy1441 said:

Wing Commander said:

Thanks for your thoughts on this. So am I correct in thinking that if they were to pre-pack, and sell it essentially to themselves including stock, they just avoid liability for all their debts including staff wages etc?

What is to stop any company just loading up on debts, and then pre-packing it, taking all the good bits and leaving the crap behind?

Sorry if I am not getting this - it's considerably outside my sphere of knowledge!

Do the administrators not chose who to sell the assets to so would need to make solid commercial sense to do it.

If the liquidation follows a normal path, the Administrators can indeed sell to who they like. Their job is to maximise the value of the assets to would sell to the highest bidder of if the assets were time sensitive, whoever is the first to buy.

If it's Pre-Pack, the buyer has already been established. All the Administrator does is administer the sale so has no say.