BHS administration is ‘biggest collapse since Woolworths’

As thousands of high street jobs are left at risk, experts consider HR’s role in the process

Retailer BHS officially fell into administration this week, leaving 11,000 staff in limbo as they wait to see whether their employer can be rescued. The department store is the biggest collapse on the high street since Woolworths in 2008.

According to the latest reports, administrators Duff & Phelps have so far received 50 expressions of interest in the company, while former owner Sir Philip Green has been asked to face MPs over the collapsed chain’s £571 million pensions deficit.

Menswear retailer Austin Reed has also entered administration, leaving 1,184 employees across 100 standalone stores and 50 concessions throughout the UK and Ireland fearing for their jobs.

While a company going into administration is tough on everyone involved, experts say HR has a particularly pivotal role to provide both practical and emotional support.

“Sometimes you have to give other people messages and take account of their sensitivities when you are feeling pretty rubbish yourself because you are in the same boat,” says Geraldine Buckland, head of HR consulting at Smith & Williamson.

“People are normally upset and angry and it is the HR team that is normally the buffer.”

When a business is insolvent and lacks enough assets to cover its debts it may go into liquidation, receivership or administration, explains Julie Palmer, regional managing partner at Begbies Traynor.

“Administration is regarded as much more of a rescue procedure than liquidation, which usually means automatic cessation of the business. In administration, the nominated insolvency practitioner is appointed through a court process and takes control of the management of the business,” she says.

“Its duties are to the creditors and ensuring a return of as much as they can to those creditors. What they are trying to do is maximise the value of the assets, and that can be achieved if they are able to get a sale as a going concern, rather than breaking up the business.”

Under administration, a company can continue to trade as usual – BHS’s 164 stores are still in operation as talks continue  – but legal action against the insolvent company is halted, which means creditors cannot seek recourse to recover outstanding debts.

Russell Teale, now performance director of Total Fitness, recalls that, in 2010, “it was almost the start of the end” for the gym chain: “We closed eight of our gyms, which was very much a last-minute decision, essentially making people redundant with a week’s notice, and not being able to provide them with a proper consultation period.

“HR’s role within that was to steer people through some very difficult times, and be as supportive and informative as possible. Through hard work and long hours we managed to steer ourselves through without any major issues or tribunals.”

When administrators are called in, they may support HR with delivering messages, or formulating all the organisation’s communications, says Palmer. This might include telling staff the business is going into administration and what that means, explaining how it might affect their benefits and entitlements such as pensions, and notifying them of redundancies.

HR may also be tasked with giving the administrator operational and specific employee information, such as identifying the minimum number of staff required to keep the business going, and who those people are: “HR can often help you identify the people in the critical roles, while knowing that a high proportion of their colleagues will not be in that group and will be going out the door,” says Buckland.

“In these situations, you often can’t go through all of the niceties because you have a failing business and you are trying to salvage something. It is quite a stressful thing to find a speedy process that is also fair, legal and robust.”

When Woolworths entered administration in 2008, it failed to carry out a collective consultation with all employees regarding redundancies, resulting in hundreds of former employees bringing claims for lack of consultation. A tribunal made a number of awards, but only to former employees from stores with 20 staff or more.

As collective consultation law stands, individual stores with more than 20 people require a 30-day consultation period, and those with more than 100 should have a 45-day consultation period.

Palmer adds: “You need to achieve a balancing act of consulting as much as possible in the circumstances, but the circumstances make it nigh-on impossible to go through the proper consultation period.”

Buckland says having written answers to frequently asked questions, such as why is this happening and how it will affect employees’ financial position, could help HR field calls about the process.


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