A whopping £390,000+ worth of employment tribunal claims went entirely unpaid last year following the employers in question being placed in administration or being dissolved or liquidated. Experts have stated that these figures may indicate the continued struggle with ‘phoenixing’ businesses avoiding tribunal debts.
It was revealed, thanks to figures from the Department for Business, Energy and Industrial Strategy (BEIS) by People Management under a freedom of information (FOI) request, that 56 awards (worth a total of £394,505) were unpaid due to insolvency in 2017. This figure was broken down further, bringing to light that of the 56 unpaid awards two (worth £20,695) were unpaid due to administration, twenty six awards (worth £87,544) went unpaid due to dissolution and twenty eight awards (worth £286,267) were unpaid because of liquidation.
A company is placed in administration as a means of attempting to save it from insolvency. This involves control being handed over to an administrator, who will attempt to pay off, or reach a deal with, as many creditors as possible, as to reduce the company’s debts.
A company is liquidated when, as a means to pay off debts, its assets are sold off. This usually occurs after administration is unsuccessful. Finally, a company is dossolved once it is struck off the Companies House register.
The particular companies in question were not revealed, however the figures suggest that there is a continued issue of ‘phoenixing’, the unscrupulous practice of company owners avoiding tribunal awards or other penalties by making their business insolvent only to set up a very similar, new company afterwards.
Croner associate director, Paul Holcroft stated ““In the current climate, where we hear of town centres being depleted of their shops and pubs at an alarming rate, there will be very many genuine insolvency situations which mean tribunal awards go unpaid, however, with the possibility that ‘phoenixing’ is contributing to that number, employers may well be intentionally circumventing the system.”
“Without detailed analysis, it is difficult to tell which are genuine insolvencies and which aren’t, but anecdotal evidence from claimants has suggested that many insolvent ex-employers are now trading again.”
It’s clear that phoenixing is a common problem that continues to grow. However, the Taylor Review on Modern Working Practices, which was published in July 2017, called for the government to take further action against companies which dodged paying tribunal awards, and to establish a “naming-and-shaming” system for those who did not pay awards within a reasonable time period.
As stated on gov.uk, UK law allows directors, owners and employees of insolvent companies to set up brand new companies and carry on a similar business as long as the individuals involved aren’t personally bankrupt or disqualified from acting in the management of a limited company.