- 04 Feb 2025
- •
- 7 min read
Proposed Changes to Collective Consultation: Implications for Insolvency Practitioners

Insolvency Practitioners (IPs) have long had to grapple with the complex and – at times – impractical requirement to collectively consult with staff in large-scale redundancy situations.
The recent Employment Rights Bill includes changes to the “establishment” test which is likely to increase the number of redundancy situations that require collective consultation. In addition, a government consultation has sought views on planned changes to the compensation that is awarded where an employer fails to comply with its obligation to collectively consult.
Andrew Crudge (Senior Associate – Employment) and Melia Hirst (Partner – Restructuring & Insolvency) consider how these changes will impact the way in which IPs navigate employment obligations during restructuring and insolvency processes.
Collective Consultation in Insolvency: The Current Framework
Under existing legislation, the duty to collectively consult arises when an employer proposes to make 20 or more employees redundant at one establishment within a 90-day period. This obligation applies equally to businesses in solvent trading and those undergoing insolvency processes such as administration, liquidation, or company voluntary arrangements.
Employers need to consult with appropriate representatives of the affected employees (trade unions or elected representatives). They must provide specific information about the proposed redundancies, including the reasons, the numbers involved, and the selection methods.
The consultation is required to last for a minimum period: 30 days where 20-99 redundancies are proposed, and 45 days for 100 or more redundancies.
There is also a statutory requirement by the employer to notify the Secretary of State in advance of the redundancies using form ‘HR1’. Any failure by the employer to comply with the notification requirement without good cause could lead to prosecution and a fine. This would impact the employer and/or officers of the company (which extends to any appointed administrator or liquidator over the employer).
Challenges Faced by IPs
Compliance with collective consultation and notification obligations presents significant challenges for IPs.
One key difficulty is the time pressure associated with insolvency processes. Rapid decision-making is often necessary to preserve value for creditors and avoid the adoption of employment contracts after 14 days, by an administrator. This urgency frequently conflicts with the statutory consultation periods required by law.
Resource constraints also pose a challenge. Insolvent employers often lack the financial and human resources needed to facilitate effective consultation, including the election of employee representatives where none exist.
Lack of available information to the IP can also present issues. The information may not be fully available to them on appointment as to prior redundancies in the 90-day period and what steps have or have not been taken as regards consultation and notification.
Furthermore, uncertainty about the outcome of insolvency proceedings makes compliance even harder. In many cases, redundancy proposals depend on whether a buyer can be found for the business or its assets, making it difficult to provide employees with the information required for meaningful consultations.
Any redundancies made by the previous management (before the IPs involvement), and failure to comply with consultation requirements, could materially impact on strategies for selling the business and assets as a going concern (as any buyer will be nervous about inheriting liabilities for non-compliance and ancillary losses).
Despite these difficulties, failing to properly comply with the collective consultation and statutory obligations can result in claims for protective awards, leading to substantial financial liabilities. Under the current law, failure to comply with the obligation to inform and collectively consult exposes the insolvent employer to pay affected employees a protective award of up to 90 days’ (uncapped) pay.
Proposed Changes
The current requirement for an employer to collectively consult applies where 20 or more redundancies within a 90-day period are proposed at one establishment.
When the Employment Rights Bill comes into effect (anticipated next year, in 2026), the references to “one establishment” will no longer apply. This means that the number of redundancies across the whole entity will be taken into account when determining whether this threshold of 20 or more redundancies has been reached. Where the whole workforce is being made redundant – which commonly occurs in an insolvency situation – it will become far more likely that the obligation to collectively consult will apply, given that redundancies across the whole organisation will need to be factored in.
Where an employer breaches its collective consultation obligations, employees will be able to bring a claim for compensation, which is referred to as a protective award. The protective award is currently up to 90 days’ actual pay per employee. The government’s consultation sought views on two alternative proposals to increase the protective award:
- Option 1 – increase the protective award from 90 to 180 days.
- Option 2 – remove the cap on the protective award entirely. This would leave it to the discretion of the employment tribunal to decide the applicable penalty.
The outcome of this consultation has yet to be published. However, either of these options could significantly increase the financial penalties for employers who fail to comply with the collective consultation obligations. Given the particular difficulties that IPs face in these circumstances, the changes are likely to have a major impact in insolvency situations and could reduce the available options to sell any business or assets of the insolvent employer. An increased number of claims with higher value awards may arise, which in turn could make business sales out of insolvency off-putting to buyers and could otherwise materially impact on recoveries for the benefit of the insolvent employer’s creditors.
Practical Implications for IPs
The increased prevalence of collective consultation processes is likely to impose greater statutory and administrative burdens on insolvency practitioners (IPs). They will need to dedicate significant time and resources to preparatory work, such as assessing the feasibility of appointing employee representatives where none exist and preparing detailed redundancy plans, even in situations where the future of the business remains uncertain.
Whilst there is a “special circumstance” defence for failure to inform and consult on collective redundancies, the defence is narrow and limited. Even in an insolvency situation the fact of the ‘insolvency’ of the employer is not in itself sufficient, although it may be a mitigating factor when determining the protective award. The insolvent employer is still expected to take all reasonable steps to comply with the obligation.
The potential for increased claims to the Employment Tribunal by employees and greater compensation could also lead to an increase in claims for protective awards by employees who have not received the required consultation. This may be particularly true in cases where compliance with enhanced consultation duties proves impractical. The government will guarantee up to 8 weeks of any protective award subject to a statutory cap applicable to a week’s pay. In some situations protective awards relating to the period up to the “relevant date” prior to the formal insolvency, can have preferential status in the insolvent estate (up to applicable limits), in priority to most employment (unsecured) debts.
It should also be noted that the Employment Rights Bill will see changes implemented to increase protective awards for any breach of the Code of Practice on Dismissal and Re-engagement where employers dismiss employees and re-hire new employees on different terms. Examples of this have been seen where it hasn’t been possible to obtain employee or trade union consent in time (e.g. P&O ferries dismissals in 2022 being a notorious example). The Code was introduced in July 2024 and such dismissals must be limited to “last resort” situations.
As a result, IPs will need to be alive to their responsibilities in relation to insolvent employers and as necessary, incorporate these potential obligations and liabilities into their strategies for managing outcomes, in order to best serve the creditors’ interests.
The broader application of collective consultation requirements brings home the practical challenges which might impact on the available options for IP left administering the affairs of the insolvent employer.
While enhanced consultation processes are intended to improve transparency and fairness for employees and offer valuable protection to them, they could unfortunately have the unwanted effect of prolonging uncertainty for the workforce and limiting available options to rescue the business. This extended period of ambiguity may exacerbate morale issues during an already difficult time for employees.
Navigating the Proposed Changes
To mitigate these challenges, IPs should consider their role in relation to the following strategies and actions:
- Early Engagement: At the outset of becoming involved, find out what steps have already been taken in relation to redundancies at the employer’s business. If further redundancies are needed, take steps to engage with the management, its employees and their representatives as early as possible to establish open lines of communication and facilitate smoother consultation processes.
- Proactive Planning: Where the situation can facilitate, develop robust redundancy and consultation plans that account for the proposed changes, including timelines, resource allocation, and contingencies for potential liabilities.
- Collaboration with Legal Advisors: Take advice early to ensure compliance with evolving legal obligations and to address potential risks associated with protective award claims.
- Monitor and consider contributing feedback to R3 / regulatory bodies: R3 (the Association of Business Recovery Professionals), as the industry body supporting IPs have recently submitted responses to the Department for Business and Trade’s consultation on the current and proposed legislative framework around collective redundancy consultations. R3 have made representations including proposed changes to the HR1 forms for use in insolvency situations, training for Employment Tribunal judges to mitigate the impact in insolvent situations, querying the appropriateness of penalties which serve as no deterrent where the IP is simply trying to resolve the situation left by previous management as well as seeking a review of the status of protective awards in insolvencies. It will be worth monitoring the outcome of this and making further representations as this develops.
Unrealistic Expectations?
Given the unique challenges inherent in insolvency proceedings, the requirement for collective consultation imposes an often unrealistic and unreasonable expectation on insolvent employers and IPs. These processes demand swift action under intense time and resource constraints, leaving little room to navigate the complexities of enhanced consultation requirements.
The failure to shelter insolvency proceedings from the proposed changes to collective consultation practices is likely to exacerbate the difficulties faced by IPs. The changes reflect the government’s commitment to protecting employees’ rights, but the additional financial and administrative burden of this will inevitably fall on the creditors of these struggling businesses.
IPs will continue to be tasked with balancing their obligations against the commercial realities of insolvency proceedings. By proactively addressing these challenges with appropriate legal advice and adapting their practices to meet evolving requirements, IPs can better navigate this complex landscape while minimising risks and liabilities to best serve the interests of the company’s creditors.
For more guidance on this topic, please contact Andrew Crudge or Melia Hirst.

Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.