Business Closure - things to consider Part 2
01 March 2019
Afsana Rahim Steven King
In Business Closure - things to consider Part 1, we have introduced several important steps to take if you want to properly close down a solvent, UK-registered limited company from the immigration and commercial law perspectives. Besides these, business owners cannot avoid considering other things like redundancy processes and exiting lease.
If you are closing a store or office you will most likely have to make the majority of the workforce redundant. Simultaneously, you have to consider who is going to oversee the business closure. Will employees from another location be put in charge or will you entrust the at-risk employees to close it themselves? If you choose the latter you have to decide which employees are best suited to manage the redundancy process as ensuring that a fair process is followed will be crucial to preventing any tribunal claims. Therefore, you may consider incentivising these employees, possibly by offering them a bonus, to ensure their compliance.
The redundancy process involves warning all affected employees and allowing time for consultation, both group and individual consultation depending on the size of the business. If there are still positions available, you need to identify these and inform at-risk employees of these vacancies. Moreover, if you have another office or location, provided it is within a reasonable distance, you have to consider if there are any vacancies there which can be filled by these employees. Then you will have to apply fair selection criteria to the at-risk employees to fill any available positions and allow the right to appeal for those that have not been selected. In your decision making, you should be transparent with your employees so as to avoid any allegations of unfairness or discrimination. Moreover, you should ensure that all eligible employees receive their correct redundancy payments, according to their age and length of service.
It is more than likely that a company is running a business from a property which is leased from a landlord. Most preferably a company would want to dispose of its interest in the property without incurring any penalty. Asking the landlord to end the lease early and take back the property can work out to be extremely costly for a tenant; we can review the company’s lease and identify the options available for early termination or other ways to exit the lease. We have highlighted the common options:
Break clause – this is a pre-agreed contractual lease between the landlord and tenant allowing the tenant to exit the lease early without penalty. This option is only available if the lease permits.
Assignment – most leases include the right of the tenant to transfer the lease to a third party, subject to landlord’s consent. The tenant would remain liable even after the transfer of lease as it is a mandatory requirement to offer a guarantee to the landlord.
Underletting – if a lease permits, a tenant can sub-let to a sub-tenant, however this option is not always viable as the tenant would still be contractually tied to the lease until the end of the lease term.
Surrender – the landlord may accept the end of the lease if a tenant makes a payment as compensation for leaving the property early. However, this is solely subject to the landlord’s agreement.
Forfeiture – this is a landlord’s right to take back the lease if a tenant does something wrong, for example not paying the rent. The landlord can force the tenant to vacate but there are financial implications of doing this.
We would recommend that you read our newsletter on exiting a commercial lease which provides a more detailed explanation on the above options: Exiting a Commercial Lease.
If you require guidance and assistance with the shutting down of a business, please contact our legal team for advice.
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Soliicitor Afsana Rahim
Soliicitor Steven King
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