How are employees affected in a CVA?

Staff and Company Voluntary Arrangements

A Company Voluntary Arrangement, known as a CVA, is a structured way for qualifying companies facing a considerable downturn to reorganise. To be eligible for this arrangement, companies must be considered financially viable going forward.

An authorised insolvency practitioner (IP) assesses if the company is insolvent or potentially insolvent, which is another requirement for approval. They will also verify that the business has the means to repay the CVA throughout its entire duration.

Considering the business might have to cut expenses and become more efficient to meet its new financial commitments, employees may face challenges during a CVA. Staff expenses can make up a considerable part of a business’s costs, leading to the unavoidable termination of employment contracts in certain instances.

How exactly do CVAs impact employees, and are staff members automatically made redundant due to the company’s financial difficulties?

How are employees affected by a Company Voluntary Arrangement?

Employees don’t automatically lose their jobs when their employer goes through a CVA. In reality, the company might need its staff to keep things running smoothly and improve the chances of meeting repayments throughout the entire CVA period.

If job cuts can’t be avoided, the company must follow legal procedures to ensure fairness. This includes strictly adhering to the consultation process outlined in employment law.

Unfair dismissals can lead to substantial compensation claims. This could jeopardise the success of the CVA as these claims become unsecured debts within the arrangement, potentially creating more financial uncertainty for the company.

Alternatively, instead of making job cuts, the company might be able to retain staff by adjusting their employment contracts. Once again, strict compliance with employment laws is crucial, ensuring all necessary consultation procedures are followed regarding changes in working hours or other terms.

Employees made redundant in a CVA

Workers who lose their jobs due to a Company Voluntary Arrangement can request redundancy pay and other benefits if they’ve been with the company without a break for at least two years.

They might qualify for the following payments:

• Statutory redundancy pay
• Up to six weeks of unpaid holiday pay
• Arrears of wages of up to eight weeks
• Notice pay
• Unpaid pension contributions

The Redundancy Payment Office (RPO) handles the payments, turning into a creditor of the company. The amount is then repaid as part of the CVA. This allows the company to manage the expense of redundancies over the entire period, usually spanning from two to five years. 

How much redundancy pay for employees affected in a CVA?

The redundancy pay that employees can get varies based on individual situations. The factors considered in calculating redundancy pay include the employee’s age, current salary, and duration of service.

For the calculation, the government has set a monthly wage limit of £571, and the total redundancy pay is capped at £16,320 for the 2021/22 period. Also, the length of service is counted only in complete years.

Redundancy pay may consist of different parts, such as Notice Pay and overdue wages, alongside the main statutory payment. Up to £30,000 is exempt from tax and National Insurance.

 Read More:

• CVA vs liquidation
• CVA debt write off
• CVA rejected
• Hiving as part of Company Voluntary Arrangement
• CVA Advantages

Obtaining professional advice on CVAs

It’s important to seek expert advice on insolvency early if your business is facing financial difficulties and has employees. Taking prompt action can offer more options and prevent a descent into insolvency. 

Vanguard Insolvency specialises in Company Voluntary Arrangements and offers trustworthy independent advice on your present circumstances. Please get in touch with one of our team members to schedule a free, same-day consultation – we have a wide network of offices across the UK.