Making Employees Redundant in a Company Voluntary Arrangement (CVA)

Your CVA proposal shows the business can survive with a leaner payroll.

Now you need to tell three people they no longer have jobs, and you need to do it correctly, or the restructure you fought to get approved unravels in an employment tribunal.

Redundancy inside a Company Voluntary Arrangement (CVA) is legally possible, widely used, and operationally complicated.

The steps are not optional, the costs have a defined order of priority, and the protections your employees hold do not shrink because your company is under financial pressure.

Read on for the legal position, the cost structure, the consultation rules directors most commonly get wrong, and the TUPE trap that catches businesses selling a division during a CVA.

Making Employees Redundant in a CVA at a Glance

Quick Answer: Can You Make Employees Redundant in a CVA?

Yes. A CVA does not suspend employment law, and it does not freeze your headcount. You can make employees redundant before, during, or after the arrangement is approved. You must follow UK redundancy law at every stage.

When Redundancy in a CVA Applies

Redundancy typically enters the picture when the CVA proposal itself depends on a lower wage bill to meet creditor repayments. Your insolvency practitioner (IP) will model the cash position over the arrangement period.

If the current payroll makes the numbers unworkable, redundancies become part of the restructure rather than an afterthought.

Main Risk in Making Employees Redundant During a CVA

The main risk is process failure. An unfair dismissal claim does not wait for your CVA to complete.

An employment tribunal award against the company becomes a new creditor liability: potentially one that was not in the original proposal and that creditors did not vote on. That can breach the CVA and trigger its failure.

What Directors Should Do Next About CVA Redundancy

Get employment law advice running in parallel with your insolvency advice. Your IP handles the CVA mechanics; an employment solicitor handles the dismissal process. The two need to be coordinated before you issue any redundancy notices.

Can You Make Employees Redundant in a CVA?

Legal Position on Redundancy During a CVA

A CVA is a formal insolvency procedure under the Insolvency Act 1986 (ss. 1 to 7B), but it does not put the company into administration or liquidation. The company keeps trading. The directors keep running it.

Employment contracts remain in force.

Your employees keep all the rights they held before the CVA was approved, including the right to claim unfair dismissal if you dismiss them without following a fair procedure.

Redundancy is a potentially fair reason for dismissal under the Employment Rights Act 1996 (ERA 1996). Financial distress is not a defence against a bad process.

You can have a genuinely legitimate business reason for the redundancies and still face tribunal claims if you skip the consultation, apply inconsistent selection criteria, or fail to consider suitable alternative roles.

When CVA Redundancy May Be Necessary

The envelope arrives in reception on a Monday morning: it is the creditor vote result. The CVA is approved, but the proposal included reducing the 14-person customer service team to eight.

The directors now have a legally binding obligation to creditors that depends on those six redundancies happening.

Delaying them does not protect anyone. It delays the cashflow saving the CVA depends on and risks the whole arrangement. Redundancy during a CVA is often necessary when the cost base genuinely cannot support creditor repayments at the current headcount.

That is an honest commercial judgement. What makes it workable, legally and operationally, is doing it correctly.

When CVA Redundancy Creates Employment Law Risk

Risk accumulates when directors treat financial pressure as a short-cut.

We see this pattern repeatedly in restructuring cases: the business is under stress, the IP is focused on the proposal, and the directors assume “restructuring” excuses a rushed process. It does not.

The specific risks include skipping individual consultations for small-scale redundancies, failing to apply written selection criteria, issuing notices before the consultation period ends, and ignoring the obligation to look for suitable alternative employment.

Each of these is a separate potential claim.

Redundancy Pay and Costs in a CVA

Statutory Redundancy Pay Cap and the £751 Weekly Limit

Statutory redundancy pay is calculated on the employee’s weekly pay, their age, and their length of service. Weekly pay is capped. From 6 April 2026, the cap is £751 per week (up from £719 in 2025/26).

The maximum statutory award is 30 weeks’ pay, giving a ceiling of £22,530.

That cap matters most for your senior team. A sales director on £90,000 who has worked for you for twelve years has a weekly pay of £1,731. The statutory calculation uses £751.

The gap (roughly £980 a week across 17.5 weeks of entitlement) is a liability your company carries, not one the Redundancy Payments Service covers.

If you have promised enhanced redundancy terms in any employment contract, those enhanced amounts sit entirely with the company. Statutory redundancy pay requires a minimum of two years’ continuous service.

Employees with less than two years get nothing under the statutory scheme, though notice pay still applies.

How the Redundancy Payments Service (RPS) Works in a CVA

The Redundancy Payments Service (RPS), operating under Part XII of the Employment Rights Act 1996, steps in when an employer cannot pay statutory redundancy entitlements. Employees submit an RP1 form.

The kitchen table version of this process is an employee sitting at home filling in that claim, because the company cannot fund what it legally owes them.

The RPS pays: statutory redundancy pay, arrears of wages up to eight weeks (capped at the £751 weekly limit), notice pay up to twelve weeks, and unpaid holiday pay up to six weeks.

Once the RPS pays out, those amounts become a debt owed back to the Redundancy Payments Service. They sit as a preferential debt in your CVA, ahead of most unsecured creditors.

One point directors frequently misread: the RPS is available during a CVA if the company genuinely cannot meet the payments. It is not limited to formal insolvency. Your IP can advise on the conditions and timing.

Preferential Debt Treatment for Redundancy Costs in a CVA

Outstanding wages owed to employees at the time the CVA begins are treated as preferential debts under Schedule 6 of the Insolvency Act 1986, subject to a cap of £800 per employee.

Any amount above £800 in outstanding wages becomes an unsecured debt in the CVA.

Statutory redundancy pay claims paid by the RPS also rank as preferential debts: the government steps into the employee’s shoes and takes their priority position.

We recommend that your IP models these preferential liabilities explicitly in the waterfall before the proposal goes to creditors.

A CVA that underestimates preferential claims can fail the vote or, worse, fail during the arrangement period when the cash runs short. Our experience with CVA proposals is that this line item is consistently underweighted.

Employee Rights When Made Redundant in a CVA

Consultation Requirements for CVA Redundancies

Individual consultation applies in every redundancy, regardless of scale.

You need to meet with each at-risk employee at least once, explain the situation, discuss alternatives, and allow them to be accompanied by a trade union representative or a colleague.

Collective consultation kicks in when you propose to dismiss 20 or more employees at one establishment within 90 days.

Under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA 1992, s.188), you must consult employee representatives for at least 30 days before the first dismissal.

If you are proposing 100 or more redundancies, that minimum extends to 45 days.

You must also notify the Secretary of State via form HR1 before the consultation starts. Failing to do so is a criminal offence, separate from the employment law risk.

A consultation meeting at a folding table in the office kitchen is still a consultation meeting. What matters is that it happens, it is genuine, and you keep written records.

The obligation is to consult with a view to reaching agreement. It is not simply to inform employees that their roles are being cut.

TUPE and Business Sales During a CVA

This is the distinction most directors get wrong. A CVA is not formal insolvency for the purposes of TUPE.

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006) apply normally when a business or business unit is sold during a CVA.

That means: if you sell a division, a contract, or an entire trading operation as part of the restructure, the employees attached to it transfer to the buyer on their existing terms and conditions.

You cannot use the CVA as a mechanism to re-negotiate employment terms before the transfer.

A dismissal connected to the transfer is automatically unfair unless it falls within an economic, technical, or organisational (ETO) reason. The bar for that is set in case law, not in the CVA proposal itself.

If a sale of part of the business is in your CVA’s restructuring plan, TUPE advice is not optional.

We have seen arrangements where the sale completed, the employees transferred on legacy terms, and the buyer came back against the selling entity for misrepresentation about the workforce liabilities. That is an avoidable outcome.

What Employees Can Claim if the CVA Fails

If the CVA fails and the company enters liquidation, employees made redundant during the arrangement can still claim from the National Insurance Fund via the RPS for any statutory entitlements not yet paid.

The liquidator will also assess preferential wage claims and RPS subrogated claims in the standard insolvency waterfall.

Employees are not worse off because the CVA failed. Their statutory protections follow them through the procedure. What changes is who administers the claims: the CVA supervisor hands off to the liquidator.

Risks for Directors Making Employees Redundant During a CVA

Unfair Dismissal Risk During CVA Restructuring

Financial pressure is not a procedural short-cut. A tribunal does not apply a lower standard because the company was in a CVA when it dismissed the employee.

The test remains: was there a genuine redundancy situation, was the selection fair, was the consultation meaningful, and was suitable alternative employment considered?

If any one of those fails, the dismissal can be unfair, even if the business case for reducing headcount was beyond question. Tribunal awards are a new creditor liability.

If that liability was not in the CVA proposal and creditors did not vote on it, it creates a breach. Your IP and your employment solicitor need to know about any live tribunal claims immediately.

Collective Consultation Failures That Undermine the CVA

Failure to collectively consult when the threshold is met (20 or more redundancies at one establishment within 90 days) can result in a protective award of up to 90 days’ gross pay per affected employee.

That is a substantial collective liability. For a business running on a CVA cash plan, a protective award landing unexpectedly is genuinely dangerous.

The threshold calculation catches directors out when redundancies happen in phases. If you dismiss twelve employees in week one and ten more in week eight, you have crossed the 20-person threshold within 90 days.

The collective consultation obligation applied from the moment you knew both tranches were planned.

Personal Liability if Redundancy Pay Obligations Are Not Met

Directors do not typically face personal liability for statutory redundancy pay that the company cannot meet. That is what the RPS is for.

The personal liability risk arises from conduct:

if you misled employees about their entitlements, if you paid other creditors ahead of preferential wage claims in a way that constitutes a preference under the Insolvency Act 1986 (s.239), or if you failed to cooperate with the RPS or the liquidator’s investigation.

Those are conduct issues that a liquidator or the Insolvency Service can pursue.

We flag this not to alarm directors who are acting properly, but because we do see cases where the pressure of a failing CVA leads to decisions that look like preference payments in retrospect.

What to Do Before Making Redundancies in a CVA

Work Through the Redundancy Selection Process Before the CVA Proposal

If redundancies are part of the CVA’s financial model, the selection methodology should be developed before the proposal goes to creditors, not after.

This means identifying at-risk roles using objective criteria (skills matrix, attendance record, performance scores), documenting those criteria in writing, and keeping records of how each selection decision was made.

Your IP will be focused on the creditor waterfall and the repayment schedule. The employment law process needs an owner separate from that.

You need someone, either an employment solicitor or a senior HR adviser, who is specifically responsible for the redundancy procedure running in parallel with the CVA mechanics.

Get Employment Law Advice Alongside Your Insolvency Practitioner

An IP is not an employment law specialist. Most will flag the need for separate employment advice, but the responsibility for the process sits with you as director.

A single morning’s advice from an employment solicitor at the start of the restructure costs far less than defending a tribunal claim twelve months later. The claim will land at the worst possible point in the CVA’s repayment period.

We recommend raising the redundancy plans with your IP and employment adviser in the same meeting, not sequentially.

The cash modelling and the procedural timeline need to align: consultation periods cannot be shortened because the CVA cash flow is tight.

Alternatives to Redundancy Worth Considering in a CVA

Before committing to compulsory redundancies, you have a legal obligation to consider suitable alternative employment within the business.

Beyond that obligation, there are options worth testing:

temporary reductions in hours with employee agreement, job sharing, voluntary redundancy (which costs more per head but avoids the procedural risks of compulsory dismissal), and temporary lay-off or short-time working under ERA 1996.

None of these are cost-free. Voluntary redundancy typically attracts a premium. Agreed pay cuts require individual consent. You cannot impose them unilaterally without triggering a constructive dismissal risk.

The point is not that alternatives always work. The point is that considering and documenting them is part of a legally sound redundancy process.

Your Next Step

The decision that matters here is not whether to make redundancies. Your IP and the CVA proposal will have already told you whether the numbers require it.

The decision is whether you are running the process in a way that does not add a new category of liability to a business that cannot absorb one.

Directors who can keep staff through the CVA period should do so where the numbers permit.

The disruption cost of redundancy and rehiring later is real, and retained employees who understand the situation often work harder during the restructure than new hires brought in after it.

Directors who need to reduce headcount before or during the CVA have no safe way to rush the consultation or skip the documentation. An employment tribunal does not care that the cash was tight.

Process failures turn a defensible commercial decision into an avoidable legal liability.

If you have not yet started a CVA and redundancies are part of the plan, read our guide to the pros and cons of a CVA before the proposal is drafted. The redundancy cost structure affects whether the arrangement is viable.

If your CVA has already been approved and you need to understand what happens if the arrangement cannot be sustained, see our guide on when a CVA fails.

For directors weighing a CVA against closing the company altogether, the comparison between a CVA versus liquidation sets out the key differences in how employment liabilities are handled under each route.

For a confidential conversation about redundancy during a CVA, call us on 0800 074 6757 or email info@companydebt.com.

Related CVA Redundancy Guides

Understanding a Company Voluntary Arrangement

Our main CVA guide covers how the arrangement is proposed, how creditors vote, and what the supervisor’s role is during the repayment period.

When a CVA Fails

If the arrangement cannot be sustained, our guide on when a CVA fails explains what happens to employees, creditors, and directors at that point.

Frequently Asked Questions About Making Employees Redundant in a CVA