The Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Act 2024 (the “Act”) was signed into law by the President on 9 May 2024 and will commence with effect from 1 July 2024.
The Act amends existing company law and employment law provisions, designed to enhance the protection afforded to employees in a collective redundancy situation following company insolvency. The Act also provides for the establishment of a statutory Employment Law Review Group (the “Review Group”) to guide the development of Irish employment law.
The collective redundancy legislation was initially proposed as part of the Government’s May 2021 Plan of Action – Collective Redundancies following Insolvency – Enhanced Protections and Greater Transparency for Employees (the “Plan”). The Plan also proposed the development of an Information Handbook – Rights and Remedies available to Employees Facing a Collective Redundancy Situation, which was published in December 2021, as well as the establishment of the Review Group.
In the Government press release announcing the General Scheme of the Act, Minister Dara Calleary commented:
"This Bill amends the Companies Act 2014 to improve the quality and circulation of information to workers as creditors in a liquidation. The large majority of businesses in these situations act fairly and responsibly, and the incidence of abusive practices in corporate restructuring is low. Nonetheless this Bill will ensure the measures, that exist to protect the assets from being moved beyond the reach of creditors prior to the opening of insolvency proceedings, are more accessible to creditors.”
In that context even though many of the provisions refer to insolvency law and or employment law, the matters driving this reform relate to employees’ unsecured claims and other unsecured creditors’ rights on insolvency of some companies in a wider group with retained wealth where the group was restructured to take advantage of group structures as a way of reducing liability for unprofitable operations of the group as a whole.
This insight looks at key changes the Act will make, from 1 July 2024, to the Protection of Employment Acts 1977-2014 (the “Protection of Employment Acts”), as well as the Companies Act 2014, as amended (the “Companies Act”).
Changes to the Protection of Employment Acts
Insolvency practitioners will now be required to comply with the Protection of Employment Acts and engage with employees and their representatives at an early stage in any collective redundancy scenario. Specifically:
- A liquidator, provisional liquidator, managing receiver or any other person appointed by the court with responsibility for managing an insolvent business will be deemed a “responsible person” under a new definition inserted into the Protection of Employment Acts.
- The requirement for an employer proposing collective redundancies to initiate consultations with employees’ representatives will be extended to include responsible persons. Such consultation must be initiated at the earliest opportunity and in any event at least 30 days prior to issuing the first dismissal notice. Consultations initiated by an employer may also be continued by a responsible person.
- An employer or responsible person will be required to comply with the statutory 30-day period to notify the Minister for Enterprise, Trade and Employment (the “Minister”) of a proposed collective redundancy under section 14(3) of the Protection of Employment Acts. Collective redundancies arising following company insolvency had previously been expressly excluded from that provision and so the change will ensure that all collective redundancies are subject to the 30-day notification period (i.e. notification to the Minister must take place at least 30 days prior to effecting the first dismissal). Where employees are dismissed prior to the expiry of the above notice period, they will also be able to make a complaint to the Workplace Relations Commission.
Where these obligations are not complied with, insolvency practitioners (or anyone else appointed as a responsible person) may face personal civil or criminal sanction. It will though be a defence to any such sanction to show that all reasonable professional care and skill was exercised and that there were reasonable grounds for believing that the employer in question had complied with the relevant obligation(s).
Establishment of the Review Group
The Act also provides for the establishment of a statutory Review Group, similar to the Company Law Review Group (“CLRG”), with a broad remit to monitor, review and advise the Minster on employment law matters. The establishment of the Review Group recognises the complexity and extent of Irish employment legislation, which requires specialist input to ensure that emerging trends are examined and it remains fit for purpose.
The Review Group will be appointed by the Minister, who will, at least once every two years and following consultation with the Review Group, determine its work programme. An annual report on the Review Group’s activity shall be presented to the Oireachtas. Although it was intended to establish the Review Group on a non-statutory basis pending the enactment of the Act, it has not yet been formally announced.
When announcing the publication of the General Scheme of the Act, Minister Neale Richmond said: “The Group will comprise of members with expertise and an interest in the development of employment and redundancy law. This will include members from the legal, accountancy and insolvency professions; representatives from business, unions and regulators; as well as Ministerial nominees.”
Companies Act Amendments
The Act will also make significant changes to the Companies Act, not only to improve transparency for employees but also to extend the look-back period for unfair preferences and to refine the provisions in relation to reckless trading.
These amendments were driven largely by the CLRG, which was tasked in its work programme with addressing, from a company law perspective, examples of certain practices in corporate restructuring as described by Minister Calleary in the press release referred to at the beginning of this insight. Two CLRG Reports were produced in this regard in May 2021 and December 2021.
The additional changes that will come into force on 1 July 2024 are:
Circulation of Information to Employees
- Directors will be obliged to notify employees and any employees’ representative of the filing of a winding up petition “as soon as reasonably practicable”.
- A provisional liquidator will be required to inform employees and any employees’ representative of their appointment, explain the process and that they may provide information to the provisional liquidator about the company’s affairs.
- Liquidators (or provisional liquidators) will, within seven days of being served with the company's statement of affairs (provided for under section 593 of the Companies Act), have to notify employees and any employees’ representative of that fact. Employees and their representatives will be able to request a copy of that statement of affairs and the liquidator must provide that within seven days.
Contribution Orders
- The court will be given wider discretion to make contribution orders against related companies of a company which is liquidated. Section 599 of the Companies Act has been amended to modify the tests set out in subsection (4). The court may take a number of matters into account including the existing criteria set out in subsection (4)(a)-(c), in addition to new criteria set out in subsections (4)(d) and (e) where the court may have regard to the extent to which the circumstances that gave rise to the winding up of the company are attributable to the acts or omissions of that related company and may have regard to such other circumstances the court considers appropriate. The provisions remove subsection (5), which provided that the court could only make a contribution order if it was satisfied that the circumstances that gave rise to the winding up of the company were attributable to the acts and omissions of the related company. In effect, this absolute requirement has now been modified to be simply just one of a number of criteria that the court can consider.
Unfair Preferences
- The court will also be given discretion to extend the look-back period for unfair preferences involving creditors and connected persons under section 604 of the Companies Act beyond the existing six months and two years periods respectively, if it considers that to be just and equitable in the circumstances. This will lead to an increase in the number of pre-insolvency transactions subject to scrutiny by liquidators and company directors should be mindful of this increased scope of the section once commenced.
Anti-deprivation Provisions
- Section 608 of the Companies Act, which enables the court to order the return of company property that was improperly disposed of with the effect of perpetrating a fraud on the company or its creditors or members, will be amended to exclude payments made in the ordinary course of business. This is designed to clarify the decision of the High Court, affirmed by the Court of Appeal, in Tucon Process Installations (In Voluntary Liquidation) v Bank of Ireland [2015] IEHC 312 and [2016] IECA 211 so that the provision remains applicable in cases such as that arising in Re Le Chatelaine Thudichum Ltd (In Liquidation) v Conway [2010] 1 I.R. 529. The provision was included originally as a new provision in the 1990 Act and was designed as an anti-deprivation provision. This amendment seeks to maintain that clarity.
Reckless Trading
- The reckless trading provisions of section 610 of the Companies Act will be amended to clarify the objective standard that was originally intended to apply under the provision. The word “knowingly” is removed, as is the blanket defence of having acted honestly and responsibly in relation to the conduct of the affairs of the company. These provisions were considered by the CLRG as being inconsistent with the type of objectively based culpability the provision sought to establish. This will be replaced with a new defence that the officer of the company took, from the relevant time (when they knew or ought to have known their actions would likely cause a loss to the company's creditors), such steps as were reasonably practicable for them to take to minimise such loss. In addition, following the decision of the Court of Appeal in Re Appleyard Motors Ltd (In Voluntary Liquidation) [2016] IECA 280, there was a need to clarify what had been described as ‘deeming provisions’ in the judgement of Hogan J. and accordingly the word “deemed” has been removed. Finally, the burden of proof has been clarified in a change of wording in subsection (3) allowing for liability to be imposed where a director or officer ought to have known that his or her actions would be likely to cause loss rather than the more restrictive ‘would cause loss’. Again, this standard clarifies the position following the decision of the Court of Appeal in Re Appleyard Motors Ltd.
Conclusion
Insolvency practitioners will need to be careful to comply with their new obligations in relation to employees from 1 July 2024.
The Act forms part of a wider legislative focus on employee rights on corporate insolvency and there are more changes on the horizon in this area. The General Scheme of the Protection of Employees (Employers’ Insolvency )(Amendment) Bill 2024 was recently published. This legislation will, amongst other things, enable employees of companies/sole traders that do not enter into liquidation, receivership or bankruptcy to access the Insolvency Payments Scheme. The Companies (Protection of Employees’ Rights in Liquidations) Bill 2021, which proposes to give preferential status to groups of workers made redundant, also continues to be scrutinised by the Oireachtas.
Separately, although the European Union (Preventive Restructuring) Regulations 2022 (the “Regulations”) transposed the mandatory (and some optional) provisions of the Preventive Restructuring Directive (Directive (EU) 2019/1023) (the “Directive”) into Irish law, thus amending the examinership legislation provided for under Part 10 of the Companies Act, other optional articles of the Directive, including a proposed extension of employees’ rights, await a wider review of the Irish examinership procedure before being implemented. That said, the Regulations have altered the nature of the original moratorium provided for in the examinership legislation by excluding employees’ rights of action against the company under Regulation 11, which amends section 520 of the Companies Act to this effect.
If you would like to know more about this legislation please contact Head of Employment, Pensions and Benefits, Bryan Dunne, Restructuring & Insolvency Partners, Brendan Colgan or Kevin Gahan, or your usual Matheson contact.