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A sinking ship: HR’s role when a company goes into administration

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When a business flounders and is placed into administration, the impact and changes imposed upon HR can be huge. People director Kevin Hollingworth reflects on his first-hand experience of navigating its people through administration and safely offboard a sinking ship.

1st Dec 2022
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Entering administration and supporting the management of a business closure doesn’t form part of the everyday employment life cycle. As well as being a shock to employees, the acceptance of what’s happening can be a real challenge for any HR professional in this situation too.

As People Director at financial services provider PefectHome, I am currently guiding employees through administration and have direct experience of the complexities, emotions and bureaucracy at play. I liken this process to a sinking ship – my responsibility is to get as many people as possible onto the lifeboat to safety so they can seek out their next adventure. Here are some lessons I’ve learned along the way.

Changes can and do happen immediately, with very little warning.

What actually happens when a business enters into administration?

Through many administration scenarios, the main aim is to restructure finances and become profitable again. However, in our case, the briefing was clear from the outset and the business was to wind down and cease trading. All control and decision making therefore shifts from the main company to that of an appointed administrator.

Changes can and do happen immediately, with very little warning, and unfortunately they cannot always be handled in line with your company communication style, tone of voice or values. Sometimes, the changes take place over time (as in my case), which required a number of employees to remain in the business, engaged in their everyday work, with the anticipation of redundancy looming over them – a scenario which certainly brings its own challenges.

The priority of everyday work tasks is now to ensure any remaining monies within the business can be retained for the ‘Creditors’ (people or suppliers who are owed money) of the company.

There are often occasions where the remaining HR team are required to deal with redundancies and redeployment (or sometimes TUPE) support. These are not tasks HR professionals conduct every day, and when they are expected to be done at fast pace it further adds to the challenge.

How is the HR team impacted by administration?

No matter how trusted an HR function is, when a company is placed into administration scepticism from employees can form and quickly grow:

  • ‘I bet HR already knew’
  • ‘Do HR know more about what’s going on than they’re telling us?’ 

It’s a difficult balance for HR professionals to manage. You will naturally be dealing with your own emotions, whilst having to be mindful of how those around you are also feeling. Humility, compassion and consistent care are essential when faced with such a difficult scenario. And throughout it all, you are constantly learning about, and navigating through, the occasional conflicts between Employment and Insolvency Law.

Are you familiar with the Kubler-Ross Change Curve and the different stages experienced when dealing with change? This couldn’t be applied more in scenarios of administration. Only you might have to lean into accepting what’s going on at a quicker pace to support both your wider HR team and the business. 

You might not have all the answers but you still need to be there for your team and listen.

How can you ensure a smooth(ish) transition?

Communication is key. Once any immediate changes have taken place, there is usually some breathing space to reflect and ask questions of the administrator about processes and further changes to come. Take time to note down the questions you have, as employees will likely have the same or similar questions. 

Also be prepared for questions and scenarios that you have never come across before:

  • Ever heard of the Redundancy Payment Service (RPS)? 
  • What happens to contractual benefits? 
  • What about the employee earning enhanced Maternity Leave? 

Make sure to build a relationship with the administrator’s Employment Team. They’re likely to have encountered numerous scenarios such as this and be on hand to guide and support you. And it’s certainly beneficial to dust off your own knowledge of managing redundancies to ensure you get things right. Employment Law still applies in an administration. 

What becomes the biggest challenge in administration?

One of the main challenges can be ensuring that remaining employees are motivated and engaged. I was fortunate to have previously invested a lot of time in evolving our culture and company values and building an incredibly positive, open relationship. So much so that we were recognised as a Culture Pioneer in 2020.

Humility and talking about my own vulnerabilities really helped to rebuild some of the trust which might otherwise have diminished through the administration process.

If you’re leading an HR team to support with the changes, it is vital you take time out to talk with them and understand their emotions and needs. You might not have all the answers but you still need to be there for your team and listen, as you would have been prior to the administration. 

It is also imperative to understand that administration can bring about a very different kind of offboarding process, but this should still be done with humility, care and compassion.

Remember, the vast majority will set sail happily on board a sturdier ship. And you will too.

What considerations should not be overlooked in administration?

Firstly, if you can, work closely with the administrator, particularly if you’re handling the redundancy process on their behalf. Employees will often look directly to you for advice and support, but don’t be hard on yourself – you’re unlikely to have all the answers when an employee looks to you for help. 

If able, maintain relationships with mental health at work providers, or seek advice through charitable support such as Mind. 

You must also consider your own wellbeing – be careful not to take on the burden of things which you cannot influence or change.

And lastly, where you can, value the experience and learnings that this scenario has given you. 

When the ship is sinking...

If you find yourself in a similar scenario to me, responsible for getting people off of the sinking ship and back to safety, it can take its toll. But remember, the vast majority will set sail happily on board a sturdier ship. And you will too.

Interested in this topic? Read 'How to handle redundancies sensitively.'

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