Employees making an exit: Could this scupper your deal?

Could your employee strategy cancel a sale of a business or even land the company’s directors behind bars? Seems a bit extreme but it was high on the agenda during a recent talk discussing the lessons learnt on large insolvencies surrounding employee strategy.  While maximising shareholder/creditor value is high up the board room agenda when exiting a business, management teams rarely realise employee strategy failures may result in expensive protective awards, personal liabilities or even criminal prosecution; and word on the grapevine…there is a political push to fine and prosecute. So how can you minimise your risk and turn it into value?

Jumping through hoops
Management teams all too often think they are complying with consultation procedures but, apart from the basic requirements, there are many more hoops that a company must jump through; fall short and there can be far reaching consequences if terminations are made at the wrong time and in the wrong way. For a large corporate failing to comply, penalties can be a costly affair and, if unresolved matters come home to roost, a business could find itself in a position where a sale is no longer viable or at risk of claims being brought against the directors (or anyone acting in the capacity as a director) as well as the company itself.

An all too clear example of a political push
A clear political message from March 2015; now that the Magistrates’ Court has a new sentencing power, unlimited fines, or indeed prosecution, can be imposed for failure of the most basic requirements of employee strategy, failure to file an HR1 form (a collective redundancy consultation notification) for example. Moreover, the companies we’ve been speaking to suggest that the courts look all too willing to exercise these powers.

Other potentially explosive issues
Management teams should exercise a great deal of caution in selected redundancies as processes can be indirectly discriminatory quite by accident. If they are found to unduly affect persons with a specific protected characteristic, the courts have the power to call individuals to court as co-respondents to a case against a corporate. Directors run the risk of being held personally liable if the case against the corporate succeeds.

Minimise risk and convert it into value for shareholders
If there’s any uncertainty surrounding an employee decision, get advice from somebody who knows what they’re doing, a specialist who’s done it before and knows the pitfalls. This will reduce the risk of claims against your company and devaluation, if a sale is being considered. You will also be able to sleep at night, knowing that personal liability has been minimised and the best value has been returned to shareholders.

To what extent have you considered the HR angle of an exit? Share your thoughts below or schedule a meeting to discuss your situation in confidence.

James Yeoward |  Corporate Simplification & Exit Specialist
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