Monday, June 17, 2013

Is there an inherent conflict in the RPS being part of the Insolvency Service?

It is not much fun if you are told that you are being made redundant. It is really harsh if, after being made redundant, you find that the redundancy payments service (RPS) will not pay you because your employer was previously in a CVA. The recent decisions in two separate tribunal cases were highlighted in R3 Technical Bulletin 102, and we don’t intend to repeat all of the details here. If you would like more detail about the cases themselves see point 102.8 on page 7 of that bulletin.

We have no argument about the eventual decision, as it was essentially what we had feared when a client asked us about a similar situation a few months ago. From our reading of the legislation and guidance it appeared that, however unfair it might seem to employees, the CVA approval might act as the date of insolvency for redundancy payments purposes. The bit in the reported cases that worried us, however, was that when employees obtained the original ruling that they should be paid redundancy money by the RPS, the cases were then appealed by the Secretary of State for Business Enterprise and Skills, who is also the responsible minister for the Insolvency Service, who draft the legislation that is supposed to protect the rights of employees in insolvencies! It appears to us that there is a significant conflict between the Insolvency Service wanting to support its own section, the RPS, in avoiding payments that it does not feel are due, while also having a duty to regulate insolvency for the benefit of all stakeholders.

It is clearly inequitable to exclude employees from the government funded redundancy payments system operated by one part of the Insolvency Service on a legal technicality when those who are responsible for drafting the legislation on parliament’s behalf and created the loophole in error are also Insolvency Service staff. As soon as the Insolvency Service realised that there was a problem with the legislation that would unfairly prejudice the interests of employees in certain CVAs they should have taken action to correct the legislation, and in the interim the RPS could have let the judgements lie. By deciding to appeal the legislation on a technicality to save the government amounts that are a drop in the ocean in redundancy payments terms, the Insolvency Service has, in our opinion, taken action that conflicts with its role in the insolvency profession.

A CVA is an important tool in the recovery kit and it would be absurd if its continued use were threatened by a section of the very agency that is responsible for drafting the legislation that created it. The Insolvency Service is usually a strong and responsive regulator. We hope that it will reconsider the position and either put the employees first or split its role from that of the RPS to enable it to be more robust in future. We would encourage R3 and the regulators to join together with the TUC to pursue this issue with the Insolvency Service on behalf of employees.