How Are Employees Affected in a CVA?

If a company is struggling financially, it can put pressure on both business owners and their staff. One of the benefits of entering a company voluntary arrangement, is that there is a focus on bringing the business back to profitability while also offering a fair outcome to creditors.

Unlike some other insolvency options, under a company voluntary arrangement, employees may still have their job as the business continues to operate. However, if they are made redundant, all consultancy processes required under employment law must still be followed.

What Happens to Employees in a CVA?

What does it mean for employees when a company enters a CVA? All CVAs are overseen by a nominee. The nominee, an insolvency practitioner will review all the debts owed by the company. If this includes arrears for employee pay and/or expenses related to redundancies, these debts will be included in the proposal that goes to creditors. While it may seem a challenging and confusing time, under a company voluntary arrangement, employee rights remain the same.

A CVA may result in a restructuring of the company to optimise cashflow and business viability. Existing staff may continue to work in the business and be part of a successful turnaround for the company. There may be changes required to hours of work, pay, or pension but these must all follow appropriate consultation processes.

Employees Redundancy Rights in a CVA

If your employer becomes insolvent and enters a CVA, you may understandably be questioning company voluntary arrangement employee rights. If you’re made redundant under the company voluntary arrangement, employees are still entitled to all redundancy related payments. The difference under a CVA is that you will likely receive those payments from the government, who will become a creditor to your employer under the CVA.

If your employer becomes insolvent and enters a CVA, you are still eligible for:

  • Up to eight weeks’ pay (if your pay is in arrears)
  • Up to six weeks’ holiday pay
  • Statutory notice pay, if you were not given the required notice
  • Contributions to your pension
  • Sick leave and/or parental leave payments as relevant.

How Much Redundancy Pay for Affected Employees in a CVA?

The amount an employee may receive for redundancy pay in a CVA will depend on several factors. These include the age of the employee, the current wage of employees, and the length of service the employee has given to the company. The insolvency practitioner (nominee for the CVA) will include all these redundancy pay entitlements for employees affected by the CVA in the CVA proposal, and the government body responsible for implementing those employee payments will then be repaid over time through the life of the CVA.

Professional Advice to Mitigate Effects on Employees in a CVA

Open and honest communication under the guidance of an experienced insolvency practitioner will help minimise any fears and uncertainty employees may be feeling with your company facing insolvency, particularly concerns with company voluntary arrangement employee rights. Contact Irwin Insolvency today for professional and tailored advice for your company.

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About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency,
 rescue and turnaround.