Over £390,000 of employment tribunal awards unpaid last year due to insolvency

7 Aug 2018 By Hayley Kirton

Experts say figures may indicate continued struggle with ‘phoenixing’ businesses avoiding tribunal debts

More than £390,000 worth of employment tribunal awards went unpaid last year after the employers responsible were dissolved, liquidated or placed in administration.

Figures obtained from the Department for Business, Energy and Industrial Strategy (BEIS) by People Management under a freedom of information (FOI) request revealed that in 2017, 56 awards worth £394,505 in total were identified as being unpaid because of insolvency. 

Of those, 28 awards worth £286,267 in total went unpaid because of liquidation, 26 awards worth £87,544 because of dissolution and two awards worth £20,695 because of administration.

Although no further details of the companies involved were disclosed, the figures could suggest problems with ‘phoenixing’ – where company owners make their business insolvent to avoid paying tribunal awards or other penalties, only to set up a new, almost identical company shortly afterwards. 

“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,” said Croner associate director Paul Holcroft. “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.”

Meanwhile, Laurie Anstis, director in the employment team at Boyes Turner, told People Management phoenixing was a “problem that the legal system struggles to deal with”.

“Unscrupulous employers will often be able to escape liability by liquidating one company and starting another – sometimes repeatedly,” he added. “That can cause real problems for their employees, other creditors and for more reputable businesses who are competing with them.”

In his first annual report, published in May, the director of labour market enforcement Sir David Metcalf called for further work to be done to tackle phoenixing. 

The FOI figures also showed that, between April 2016 and June 2018 – the time period for which BEIS holds data for unpaid tribunal awards – a total of 96 awards worth £720,346 went unpaid because of insolvency. 

Of these, 58 awards worth £274,093 were due to be paid by dissolved companies, 45 awards worth £382,129 were due to be paid by liquidated companies and seven awards worth £64,124 were due to be paid by companies placed in administration.

However, the actual figure could be higher as BEIS only becomes aware of unpaid tribunal awards when told about them by the person they were due to be paid to. 

Non-payment of tribunal awards has been a long-running problem. Data cited in a report from the Department of Business, Innovation and Skills – the predecessor to BEIS – in 2013 revealed that more than a third (35 per cent) of people who had been granted an award had received no money.

Since April 2016, the government has been able to issue penalties of up to £5,000 to employers which fail to pay employment tribunal awards.

However, the Taylor Review on Modern Working Practices, published in July 2017, called for the government to take further action against employers 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. 

BEIS asked for feedback on these suggestions earlier this year as part of a wider consultation into enforcement of employment rights. That consultation closed on 16 May and the government is analysing the responses. 

BEIS has been contacted for further comment. 

A company is placed in administration in a bid to rescue it from insolvency. Control is passed to an administrator, who may try to pay off as many creditors as possible or reach a deal with creditors so that the company’s debts are reduced.

A company is liquidated when its assets are sold off to pay its debts and the process can follow an unsuccessful administration process. A company is dissolved when it is struck off the Companies House register. 

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