COLLECTIONS CCR INSOLVENCY LAW REFORM
The current law on the redundancy process in insolvency frequently leaves IPs in an impossible situation By Andrew Tate
GOVERNMENT action is needed to reform the collective redundancy process in insolvencies. Current rules require 45 days of redundancy consultation, and alternatives to redundancy to be discussed. Insolvent businesses, however, do not have the funds to comply and there are rarely any realistic alternatives. This leaves insolvency practitioners (IP) seeking to comply with the law in an impossible position. The government’s recent ‘call for
evidence’ is very welcome. This is a perfect chance to embrace the calls for reform and sort out the very real problems that exist. Existing consultation requirements are near impossible to fulfil in many company insolvency situations. This is a hopeless state of affairs which needs to be addressed urgently. Clear guidance is needed from
government. IPs will try to save jobs and businesses, but the rules on what they should do, when they cannot, are
problematic and unworkable. The government needs to work with a range of stakeholders, from the unions to the insolvency profession, to achieve meaningful reform. Since 2009, there has been a
Memorandum of Understanding between R3, the Insolvency Service, and Jobcentre Plus to enable advice to be given quickly to employees made redundant as a result of insolvency. IPs should always provide as much
advice to employees as possible about redundancies. However, in a fast-moving insolvency situation, with limited time and money, and where job losses are inevitable, a full 45-day consultation can often be impossible. Companies can become insolvent
incredibly rapidly. There may not be enough money left to pay salaries for a week, let alone 45 days, while consultation takes place, or even to pay for the consultation process itself. Moreover,
in an insolvency process, the future of the business might not be clear enough for meaningful consultation. If a full consultation cannot be
completed, the insolvent company may be required to pay employees a ‘protective award’ by an Employment Tribunal. Since the company is insolvent, this award is usually paid by the taxpayer via the National Insurance Fund – the fund then seeks to recoup this payment from the insolvent company’s remaining assets later on. The existing protective award scheme
does not work. The current legislation intends that the awards be a penalty for non-consultation, but the company’s management has no incentive to avoid the penalty: they are no longer involved or liable by the time the penalty is awarded. The award punishes the taxpayer and there is little deterrent. CCR
Andrew Tate is vice-president of R3
CLAWBACK OF VARIABLE REMUNERATION
THE Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) last month published new remuneration rules, which include changes to deferral and clawback of variable remuneration, such as bonuses. The new framework aims to further
align risk and individual reward in the banking sector to discourage irresponsible risk-taking and short- termism, and to encourage more effective risk management. The new rules apply to banks,
building societies, and PRA-designated investment firms, including UK branches of non-EEA headquartered firms. The rules are part of a wider package
that is being announced over the Summer to embed an accountable culture. Our rules will mean that senior managers face clawback of bonuses for up to 10 years, if misconduct comes to light.
36 This is a crucial step to rebuild public
trust in financial services, and allows firms and regulators to build long-term decision making and effective risk management into people’s pay packets. The primary changes are:
t Extending deferral (the period during which variable remuneration is withheld following the end of the accrual period) to seven years for senior managers, five years for PRA-designated risk managers with senior, managerial or supervisory roles, and three to five years for all other staff whose actions could have a material impact on a firm (material risk takers). t The FCA is introducing clawback rules (where staff members return part or all of variable remuneration that has already been paid to the institution under certain circumstances) for periods of seven years from award of variable remuneration for all material risk takers,
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which were already applied by the PRA. The clawback rules will be strengthened by a requirement for a possible three additional years (10 years in total) for senior managers. t Prohibiting variable pay for non- executive directors. t Making explicit that no variable pay including all discretionary payments should be paid to the management of a firm in receipt of taxpayer support. t Strengthening the PRA’s requirements on dual-regulated firms for effective risk adjustment to variable remuneration.
By Martin Wheatley, chief executive, the Financial Conduct Authority
July 2015
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