Deloitte could face prosecution over Comet redundancies

http://www.theguardian.com/business/2014/jun/22/deloitte-could-face-prosecution-comet-redundancies

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Lawyers for workers sacked when electrical goods retailer Comet collapsed in 2012 have asked a government investigation to consider whether Deloitte, the administrators involved, should face criminal charges.

The lawyers have passed on the details of a tribunal judgment, published this month, which states that Chris Farrington, one of three Deloitte administrators, signed a letter to the secretary of state, Vince Cable, in November 2012 stating that there were "no proposed redundancies at present" at Comet.

The tribunal found that redundancies were being actively considered at this time. The judgment noted that failure to notify the business secretary is a criminal offence under section 194 of the Trade Union and Labour Relations (Consolidation) Act 1992.

The law makes clear that it is the employer who must make the notification. However, Victoria Robertson, a lawyer at Needle Partnership who acted for sacked staff at the tribunal, said: "The law needs clarifying on this matter. The employer makes the redundancies but the administrator signs the form."

She said the company's directors could not be held liable as they step aside during the insolvency process.

The investigation is being handled by the Insolvency Service, a government body which will have to pay out millions of pounds in compensation to workers as a result of the mishandling of redundancies at Comet. As part of that investigation, which has so far taken 18 months, it is considering whether to refer the matter to police or the administrators' authorising body. Anyone found guilty of a criminal offence under Section 194 could face a fine of up to £5,000.

The administrators' authorising body, the Institute of Chartered Accountants (ICAEW), has powers to issue fines in certain cases. If an insolvency practitioner is found to have acted dishonestly, it can withdraw its licence.

At a Leeds employment tribunal this month, Judge Forrest ruled that former Comet employees should receive compensatory payments of 90 days' pay which could reach £25m, after finding that the company and its administrator Deloitte failed to organise proper consultations when 7,000 people were made redundant in 2012.

Forrest will decide next month exactly how many ex-Comet workers will receive additional compensation, as 4,000 staff did not stake a claim within the time limit. If he rules that all 7,000 staff are eligible, the total will reach £25m, with the bill being footed by the taxpayer since Comet is insolvent.

Deloitte declined to comment on the potential criminal charges. Last week Comet's joint liquidators Neville Kahn and Chris Farrington of Deloitte said they were disappointed with the tribunal ruling. "Comet Group Limited made significant efforts to consult with its nearly 7,000 employees across more than 250 sites during the administration, whilst a purchaser for the business was sought."

The Comet ruling is embarrassing for Deloitte, as it was previously involved in the administration of Woolworths, where the government had to pay out £67m in compensation to 24,000 workers who were made redundant when the high-street store collapsed in 2008. An employment tribunal in that case found the administrators had failed in their legal duty to consult with Usdaw before making redundancies.

Some Woolworths employees have yet to receive compensation, but as many as 3,000 more could receive cash if a case headed to the European court of justice in Luxembourg is successful.

At present, UK law limits government redundancy payments to those working in "establishments" – taken to mean individual shops or warehouses – where more than 20 people work. However, an employment appeal tribunal in Britain has already ruled the "less than 20 workers" condition should relate to a business as a whole, not individual sites.

The government has appealed against that ruling and the case is now headed to Luxembourg. If the court rules against the government, its potential liability for redundancy payments at insolvent companies when staff have not been properly consulted could soar. Comet workers would be among the beneficiaries.

The Comet case has led to fresh calls for the British insolvency system to be reviewed.

Comet was initially saved from collapse in late 2011 when it was sold to turnaround specialist OpCapita for £2, with former owners Kesa including a £50m "dowry". But it continued to lose money, and collapsed in November 2012.

It later emerged that the company's owners had received about £117m from the administration process.