Royal Mail bosses consider special administration option for postal arm

News

Royal Mail bosses threaten to declare insolvencyWhile a protracted conflict with unions shows no signs of ending, Royal Mail executives have thought about placing its troubled postal service into administration, it was revealed over the weekend.

It is believed that insolvency may be the only viable choice for a corporation that is expected to lose between £350 million and £400 million this year. Talks between the company and the Communication Workers Union (CWU) are on the verge of disintegrating

Even though there were 18 strike days in 2022, talks picked back up earlier this year, and the union decided to halt further action after making considerable advancements towards a potential settlement.

Yet, due to the ongoing deadlock over compensation and shifting work patterns, optimism for a resolution has waned recently.

The CWU national executive will meet in the coming days to discuss additional industrial action if negotiations fail.

Royal Mail bosses threaten to declare insolvency

The long-running negotiations between Royal Mail and the Communication Workers Union are in danger of failing because the company’s board is rumoured to have threatened to put the country’s regulated postal service, which is currently operating at a loss and delivers to every address in the country, under some form of administration if a deal cannot be reached.

The Royal Mail board views a controversial decision to declare the mail service insolvent as a last resort, but it has already been discussed with the union.

A Royal Mail representative replied, “We are aware of the rumours. “We are required to update our past financial statements if we have anything to add.”

If the strike goes on, Royal Mail could very well be placed under special administration. According to the insider, it is not a negotiation tactic.

The underperforming letter delivery portion of the business would probably have to be divided from the profitable parcel delivery portion, according to a another source who claimed that Royal Mail is in “uncharted area” over what would happen if it went into administration.

A representative for Royal Mail stated that the company is “dedicated to getting the right agreement” and that it is “doing everything we can” to resolve the conflict.

The company, he claimed, had been “quite explicit about the negative impact of strike action.” Royal Mail Group is in a “severe financial crisis,” according to a CWU spokesman.

An administration transition would require government approval. This would imply that Royal Mail, which includes Parcelforce, has been declared insolvent.

The issue goes beyond pay alone. Also, Royal Mail is attempting to alter the working conditions for postal employees, including starting times and sick leave.  In the protracted conflict, workers and management have been at odds, which has resulted in industrial action, including a walkout over Christmas, with potential for more strikes.

Recent issues have plagued the business, including the possibility of additional strikes and a cyberattack that halted international mail.

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What will administration mean for Royal Mail?

Before placing the business into administration, the Royal Mail board would need the government’s approval. If the action were to be taken, Royal Mail, which includes Parcelforce, might be deemed insolvent.

In this situation, the parcel portion of the delivery firm may be separated from the less lucrative letter side. I have previously written about how Royal Mail has had trouble delivering letters given the health of the company, with stacks of mail being left behind as employees struggle under a heavier workload.

Although management allegedly instructed personnel to leave letters in sorting frames or bring them back at the end of the day if they did not have time to finish the delivery, the firm has previously denied giving letters priority over packages.

This would imply that Royal Mail is not always fulfilling the Universal Service Requirement, which calls for letters to be delivered to every address in the UK six days a week.

In accordance with the rules, the business must also deliver packages five days a week.

Insolvency & Restructuring Expert at Business Insolvency Helpline | + posts

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.