Insolvency, Employee Entitlements and Employee Buyouts

1. Insolvency, Employee Entitlements and Employee Buyouts Learning from the Spanish Experience

2. UK Research ProjectSponsor : Co-operative Action Aim: To study the Spanish approach of rescuing a company in crises to save jobs by forming a Sociedades Laborales (SAL) Objectives: To amend the UK Company Act to reflect the Spanish laws In conjunction with EFES lobby the EU to make this a standard process across Europe

3. Partners • CONFESAL • EFES • Job Ownership Ltd • Open University • Equity Incentives • Wales Co-operative Centre • Co-operatives UK • Acirrt, Business School , University of Sydney

4. Belgium - Europe • Miguel Barrachina, Director General for the Promotion of the Social Economy, states that the Spanish employee owned company is an example for the rest of Europe. May 2003. • Minister of Economy of Walloons, Belgium, Serge Kubla, announces regions intent to implement the employee ownership Spanish model. March 2004. • Minister of Economy of Walloons initiates legal study to emulate Spanish legislation. 2004 • Federal Government of Belgium creates a working party to explore extending legislation to rest of country. 2004. • Candido Mendez, President of the European Trade Union Federation praises the efficiency of employee owned Spanish company as a model for the rest of Europe.

5. Insolvency – Liberal Free Market Model • Insolvency necessary part of capitalism to remove inefficient companies, where markets disappear and the business model is ineffective • However incompetent and reckless management causes unnecessary loss • Many companies put into receivership unnecessarily due to insolvency profession • 16,500 companies insolvent in UK per annum • Financial loss.Dislocation to social fabric

6. Insolvency Law • Success of Voluntary Administration shows early detection of corporate insolvency and ability to investigate has significant benefits • “Inability of governments to legislate to better protect employee entitlements is the problem” • Insolvency law has reached an unsatisfactory dead end. “Employees deserve the sympathy of the law.” • Employees rank behind secured creditors and to change this would upset how the finance industry works.

7. Trade Unions • Trade Unions do not want to deal with train wrecks trying to salvage something out of a disaster. • Employees need to be recognised as different as they loose their jobs and their entitlements. It is a moral and social question rather than a legal one. • TU no policy. Cant protect jobs or entitlements. Lose members. • “The SAL approach is a quantum leap” trade union leader.

8. Labour Market Restructuring • More attention must be paid to preventing the redundancy situation arising.Important to use the situation to restructure the organisation. • Sit Ins – the questioning and delaying of management decisions may sometimes provide a useful breathing space during which alternatives to plant closures may be found.

9. Sociedades Laborales – European social market model • Phenomenon – started out of Spanish economic crises in 1970’s and 1980’s by workers taking over companies to save jobs • Now - 120,000 workers - 20,000 companies • Typical Spanish way to deal with a crises though used less now as other strategies • Employment creation – main way - collective entrepreneurship business start up by unemployed

10. SAL Business Model • Philosophy – middle way, collective self employment, collective entrepreneurship • Workers take part in initial capital creation • Constitution of 1978 – ratified the RIGHT to full employment • 1985 – Lump Sum Unemployment – capitalise 2 years ( access in 30 days) • 1997 –Employee- Owned Companies Act – create employment and increase employee participation • Social responsibility – vision a new form of company - social, economic and environmental:

11. SAL Legal Two different corporate formulas: • Sociedad Anomia Laboral- initial share capital – 60,101 euros • Sociedad Limitada Laboral – initial share capital 3,005 euros • Minimum number of participants- 3 partners – 2 employee & 1 non employee ( capitalist) • Share limit – no partner greater than 1/3 • Ratio of partners to hired workers - 2:1 • Workers own 51%

12. Company Rescue – Spanish Way • Employees, preferred creditor status, plus legal representatives and TU negotiate with administrator, creditors and banks • Important workers decide to go ahead • Separate out asserts into NEWCO – SAL • In Parallel CONFESAL works to establish business plan and constitution by members mentoring. • Training- confidence see reality of examples • Fees paid by regional government • Stars – workers & reps, administrator and TU

13. Finance • Lump sum unemployment • Own money • 3000 Euros from regional govt – non repayable • Regional government grant • Capitalist investor

14. Typography demography • Since 1997 – SAL in service sector rapidly increased – equal to construction, manufacturing and agriculture combined • Catalonia and Basque – industrial many out of crises • Castillia La- Mancha and Andalucia – new phenomenon of industry where not before evidence of workers initiatives • Valencia – medium between the two

15. Results 2004 – Creation of Jobs Employment increase in Spain – 2.1 % Employment increase in SAL - 6.6% Increase in Companies Companies paying social security – 3.6% Sociedades Laborales - 5.4% SALs 2.5% of total new jobs in Spain

16. Next steps Stage 2 – Introduce additional resources and partners to the project to broaden the study so as to research and appraise the SAL Business model. The objective is to present a comprehensive report on the effectiveness of the Sociedades Laborales experience for the EU Commission. Stage 3 - Apply the SAL business model across Europe.

17. Conclusion • “How across Europe many hundreds of jobs have been preserved by groups of workers who had the initiative and determination to take over failing and bankrupt enterprises, usually when no one else was prepared to. It is, more than anything, a book about change: how moribund organisations have been transformed and industrial capacity preserved and reconstructed; how new ways of working and new roles for trade unions have developed; how established social and political ideas have been re-evaluated; how new networks and economic formations have emerged; and how men and women have surprised themselves by what they have become and achieved.” • Reluctant Entrepreneurs Paton &Spear et al