A CVA generally does not affect a company’s employees; the process is intended to keep the company afloat and preserve the jobs of employees. However, this isn’t always the case; there are details that should be considered in respect of employees when contemplating a CVA.
A CVA is an insolvency process; however, employees usually keep their jobs whilst the business attempts to recover from its financial burdens. If you are looking for advice and guidance on a CVA for your business and would like to know more about how it might affect your employees, please contact our team.
What is a CVA?
A CVA is a formal arrangement between a company and its creditors that allows a company to repay its creditors over a certain time frame whilst continuing to trade. At BRI Business Recovery and Insolvency, we offer advice to directors on whether a CVA is the best course of action and, if so, what the procedure is.
Find out more about Company Voluntary Arrangement here
CVAs and Employee Rights
During a CVA, employment contracts generally remain the same, and employees are employed under the same terms as they were before the CVA. Unless, of course, the CVA proposes changes, in which case, the company will have to follow employment law.
Employees keep the following statutory rights:
- Redundancy pay
- Holiday entitlement
- Notice periods
- Unfair dismissal protection
Employee Rights if Dismissed Prior to the CVA
Any employee dismissed prior to the CVA commencing will be able to claim from the Redundancy Payments Service (“RPS”) for any arrears of wages, holiday pay, pay in lieu of notice, and redundancy.
Employee Rights if Dismissed During the CVA
If any employee who was employed prior to the CVA is dismissed after the CVA commences, they are likely to be able to claim for redundancy and notice pay from the RPS. They would also be able to claim from the RPS for wages and holiday owed to them, but only for the period prior to the CVA commencing. The company would be liable for post-CVA wages and holiday pay claims.
At BRI Business Recovery and Insolvency, we can assist with the procedure for employees to make their claims and provide an indication as to the quantum they will receive. Contact us today for more information.
What Happens if the CVA Fails and the Company Enters Liquidation?
Employees are affected if a CVA fails, as the company will then enter liquidation. For new and existing employees, if they have been with the company for two years or more, then they would be entitled to claim redundancy. Providing they have been with the company for more than one calendar month, they would be entitled to claim pay in lieu of notice. They would not be able to claim from the RPS for any wages or holiday pay unless it related to pre-CVA periods, as that is the key date that triggers the RPS’s duty to pay a claim.
What Happens if the CVA is Successful But then the Company Subsequently Fails and Enters Liquidation?
The fact that the company has returned to solvency after the CVA completion and a liquidation is a new insolvency event; this should mean that employee claims would be considered at the date of liquidation. Therefore, RPS should pay out arrears of wages, holiday pay, redundancy, and pay in lieu of notice claims, although, as far as we are aware, there are no definitive guidelines released by RPS on this point.
Can Employees Vote on the CVA Process?
Employees are not required to vote on the acceptance or rejection of the CVA unless they are creditors. If the company owes the employees money, then they become creditors, allowing them to participate in the voting process. All employees should be made aware of the CVA process and what effect, if any, it has on them.
BRI and the CVA Process
At BRI, we are here to help you with advice and guidance on any form of insolvency law.
Please reach out to any of the BRI management team who will be able to offer a confidential, free, and obligation-free meeting to discuss a CVA in further detail.