CW writes: My firm has had a drop in turnover and I need to make some of my
18 staff redundant. What is the correct way to do this? The government
requires you to consult with your staff in such cases to try to find
possible job- saving suggestions from them, writes Peter Done, managing
director of Peninsula. It is vital to consult with trade unions, staff
representatives or directly with the workforce.
There are different procedures depending on the number of potential
redundancies. If the number to be dismissed is fewer than 20 and they are to
go within 90 days, the statutory dispute- resolution procedure applies.
While consulting you must disclose in writing the reasons for the redundancies
and method of calculating redundancy payments.
Tribunals take a dim view of firms in financial difficulties that just dismiss
staff as a solution. They will expect an employer to explain to workers the
attempts made to boost sales by, say, cutting prices or changing suppliers.
If suitable ideas of how jobs can be saved are not forthcoming, firms often
use a points system to identify staff they want to stay. Individuals should
be invited to a meeting to discuss their position, having already been told
their own score and that of others in their pool. Firms have to consider
suitable alternative roles for those identified as redundant. Special rules
apply to women on maternity leave.
Redundant employees should be sent a formal termination letter with a
financial statement showing notice, pay and ex-gratia payments in sufficient
detail to enable them to check that the figures are correct. The letter
should also inform staff that they have the right to appeal.
Obviously, redundancy is a difficult time for all involved so make sure the
process is followed correctly and obtain legal advice.
SHOULD I SELL FIRM TO AN MBO TEAM?
T P writes: I have run a small successful engineering business for many
years and am thinking about retiring. My family and I hold all the shares
and I always assumed I would sell up when the time came. But one of the
bosses is interested in a management buyout (MBO). What are the pros and
cons of such a deal?
Selling a small firm can be tricky because its success often depends on an
owner-manager, writes Chris Lane a partner in Kingston Smith LLP.
One way around this is to sell the business to its management, but then the
snag is that the buyers are often only able to fund the purchase through
bank borrowing and their own resources. You might get a lower price than you
could get by selling the business to a strategic trade purchaser.
One of the challenges of an MBO is agreeing a price as the two sides are often
split on valuation. If no deal can be struck and relationships break down
this can make working together in the future difficult.
The best way to truly value a business is through an open-market sale between
a willing buyer and seller. It is sometimes possible to run a sales process
alongside an MBO. This gives the vendor more options and ensures a fair
price.
The more flexible you are as a vendor on both the timing and price, then the
more likely it is a deal will be agreed. However, if you agree to take
deferred payments or an earn-out (a share of future profits), remember that
if the business does not perform well there may not be any cash available to
make the agreed payments.
A big advantage of an MBO is that it reduces the need for protection by way of
warranties and indemnities because the team are already aware of any issues
the business may face. Therefore the vendor will offer less buyer-protection
security. It is also likely that an MBO team will require only limited due
diligence as they already know the firm inside out.
