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Government funding for redundancies

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wedgeService:
Restructuring & Insolvency
wedgePublication: Case Study

How we helped a distribution business to fund the costs of downsizing its workforce and return to profitability.

The client 

Our client was a £12m turnover distribution business. It supplied a variety of customers in the construction and engineering sectors, importing its product mainly from China and the Far East.

Although it had been very profitable historically, changes in the markets that it supplied together with more challenging economic conditions generally meant that the Company was now losing money and had to make changes to its business model to ensure its survival.

The problem

A key part of the company’s turnaround plan was the closure of two small depots and a reduction in staff numbers within its head office. In all, around 20 redundancies were necessary. However, as is often the case, because of the length of service of many of these employees the redundancy costs were significant – close to £100,000.

Although these measures were vital to ensure the business’s viability – and to protect the jobs of the remaining 50 employees – the business was at the limit of its bank facilities and did not have the cash flow to meet these redundancy costs.

The client asked for our help in funding these redundancy costs.

The plan 

The scenario faced by the client is quite common. Businesses who need to make redundancies to survive are often the ones who can least afford it.

But the government operates a scheme which is designed for precisely this situation. The Financial Assistance Scheme (“FAS”), run by the Redundancy Payments Service (part of DBIS), can significantly reduce the cash flow impact of redundancies, if certain qualifying criteria are met.

Having made numerous successful FAS applications for clients in the past we identified that the client stood a good chance of making a successful application.

The result 

The information requirement for the Financial Assistance Scheme is onerous, more so than in an HMRC Time to Pay scenario for example, but we worked with management to collate the information and prepare a FAS application on behalf of the Company, and then dealt with all of the ongoing dialogue and negotiations with the RPS.

The application was approved, with the result that the RPS paid the redundancy costs of £100,000 in full, which the company was then able to repay over an 18 month period.

The affected employees received redundancy their payments within 8 weeks of the initial application and the companies turnaround plan was able to proceed.

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