Can you furlough staff and still put your company into administration?
Fortunately we’re able to work remotely and still remain in constant contact with our team and clients to help and support them.
One thing we thought we’d start sharing with you are some of the questions we’re being asked about lockdown and how some of the new rules and initiatives could impact on your business.
The first question is – Can you furlough staff and still put your company into administration?
We’re probably going to see a working example of this in operation this week if, as widely anticipated, both Debenhams and Cath Kidston go into administration.
The simple answer is yes. However, this only applies to the administration process. When the company starts the liquidation process, it will not be possible to apply for or receive furlough payments. Employees and directors on the payroll will be entitled to up to 8 weeks wage arrears at full pay (up to £538 per week) and other entitlements upon being made redundant. This will be paid by the redundancy payments service within 2 – 6 weeks.
If a company goes into administration during the coronavirus pandemic response period then the administrator will be able to access the Coronavirus Job Retention Scheme (CJRS) on the behalf of the employees.
Every private UK company, whether in administration or not, is eligible to access support to pay wages for staff that would otherwise be made redundant. Following a number of court decisions, the administrator must still agree a variation to the employee’s terms within 14 days of appointment. Employees who do not agree to the variation would likely be made redundant after 14 days have passed.
HMRC will reimburse the company with 80% of furloughed workers’ wage costs up to a capped maximum of £2,500 per month. This only applies to normal pay and does not include any commission or bonuses the employee might usually receive.
Furloughed employees may be able to work for another employer during this period providing it doesn’t breach their contractual obligation with their current employer which remains in effect.
The furlough pay period lasts from a minimum of three weeks up to originally a maximum of three months, but this has now been extended until the end of June.
A furlough in administration creates a unique situation where you can find a non-trading, trading administration. Effectively the employees will not be made redundant, but will not be expected to work either. At the same time the company benefits from an administration moratorium, allowing time to restructure and rescue the business as a going concern.
Alternatively, it allows time to structure the sale of all or part of the business, setting the business up to start fresh under a new company at the end of the lockdown period. At this point employees can either be transferred under TUPE or made redundant and entitled to their redundancy entitlements from the Redundancy Payments Service.
If you are the director of a company then you may also be eligible to be furloughed but it’s more complicated than a regular employee. You can read more about this here.
Placing a company into administration, whether in a lockdown or not, is a major decision that could have both personal and business implications for you as a director or business owner.
Even if it is the right call, you should only consider it after talking to a qualified professional who understands all the issues and can raise every possible outcome or potential consequence with you.
Whether administration is your solution or not, you need to understand what other choices are available to you – and the earlier you get in touch, the more choices you’ll find you have.
It’s hard to keep track of all the changes and announcements that might affect or benefit your business during the response to the Coronavirus Covid-19 pandemic.
That’s why we’ve created a resource page where you can read about all the help that’s available as well as the latest news that’s happening during this unique period for us all.