In a Company Voluntary Arrangement (CVA), employees may be affected in a number of ways. One of the most significant ways is through potential job losses. If a company is struggling financially, it may need to reduce its workforce in order to cut costs and improve its bottom line. This can be a difficult and stressful experience for employees, who may be uncertain about their future and the security of their employment.
Another way in which employees may be affected by a CVA is through changes to their terms and conditions of employment. This can include reductions in pay, changes to working hours, or changes to the company’s pension scheme.
These changes can have a significant impact on employees’ livelihoods and can be difficult to accept. Additionally, employees may also be affected by changes to the company’s management or ownership structure, which can lead to uncertainty and a lack of trust in the company’s leadership
How are employees affected by a Company Voluntary Arrangement?
When an employer enters a CVA, employees are not automatically laid off. In reality, the company might need to rely on its employees to keep things running smoothly and raise the likelihood that it will be able to make payments for the entire CVA term.
If redundancies are unavoidable, the business must adhere to the law to guarantee they are fair and legitimate. For instance, the employment law-mandated consultation process must always be followed.
Large claims for compensation may be made in the case of any dismissals that are thought to be unfair. As a result, claims within the CVA may become unsecured debts, thereby increasing the company’s financial uncertainties and jeopardising the effectiveness of the CVA.
Instead of laying off employees, the business might be able to keep them on if they can change their employment contracts. Again, strict adherence to employment rules is essential here, and any modifications to working hours or other terms must be subject to all relevant consultation procedures.
Employees made redundant in a CVA
If an employee has continually worked for the company for at least two years and is let go as a result of a Company Voluntary Arrangement, they are eligible to receive redundancy pay and other benefits.
They may be eligible 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
Redundancy Payment Office (RPO) makes payments, which causes it to become a company creditor and be reimbursed as part of the CVA. This aids the business in spreading the expense of layoffs over the entire term, which usually lasts between two and five years.
How much redundancy pay for employees affected in a CVA?
Depending on the conditions, an employee may be eligible to earn a certain amount of redundancy pay. The age, current wage, and length of service of an employee are factors that are taken into account when determining redundancy pay.
For the purpose of calculating redundancy compensation, the government has set a cap on the monthly income at £571, and the total amount of redundancy pay is capped at £16,320 for 2021–2022. Additionally, only entire years are used to compute length of service.
In addition to the principal statutory payout, redundancy compensation may also include other components like notice pay and wage arrears. Taxes and National Insurance are waived on income up to £30,000.
Getting expert guidance on CVAs
If your business is in financial trouble and you have employees, it’s critical to seek professional insolvency assistance as soon as possible. Acting immediately can increase your alternatives greatly and help stop you from going insolvent.
Company Voluntary Arrangement professionals Business Insolvency Helpline will offer trustworthy, unbiased advice on your current circumstances. To schedule a free, same-day consultation, please get in touch with a member of the team who can advice you about employees in a CVA..
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.