Making Employees Redundant To Save Your Business
Making Employees Redundant To Save Your BusinessReaction Engines Goes Into Administration
Published on : 31st October, 2024
Reaction Engines, a company working on a hybrid rocket engine that will allow for hypersonic flying, submitted a notice of intention to appoint administrators.
The administration will be managed by PwC restructuring specialists.
The company was dubbed as being able to launch the “next Concorde” but now 173 of the 208 staff have been made redundant.
In a statement PwC said [Reaction Engines] had been “pursuing opportunities to raise further funds, but unfortunately, these attempts were unsuccessful”.
Sarah O’Toole, joint administrator and partner at PwC, said: “It’s with great sadness that a pioneering company with a 35-year history of spearheading aerospace innovation has unfortunately been unable to raise the funding required to continue operations.”
The Oxfordshire business had been negotiating for a financial lifeline with its shareholders, notably the Strategic Development Fund of the United Arab Emirates.
It was hoped that Sabre, the hybrid jet and rocket engine being developed by Reaction Engines, could have allowed hypersonic spacecraft to travel from Britain to Australia in as little as four hours.
Reaction’s Sabre technology, short for Synergetic Air Breathing Rocket Engine, was first developed in 1989.
The company has received several government subsidies in addition to investments from BAE Systems and Rolls-Royce. But it also consumed tens of millions of pounds annually.
Last year, the business raised £40 million from investors, including those in the United Arab Emirates, increasing its total capital to almost £150 million.
The most recent financial statements show that Reaction’s yearly losses in 2022 increased from £18.4 million to £25.7 million, while its sales decreased from £7.2 million to £4.7 million.
Readers Guide To the Administration Process
As Reaction Engine enters formal insolvency, stakeholders often face significant uncertainty. Here is a breakdown of the legal framework and what it means for those affected.
1. What is a “Basic” Administration?
Administration is a powerful statutory process governed by the Insolvency Act 1986. It is triggered when a company is insolvent and can no longer meet its debts. An independent Licensed Insolvency Practitioner (IP) is appointed to take control from the directors. A key feature is the statutory moratorium—a legal “shield” that instantly stops all legal actions, such as winding-up petitions or bailiff visits, providing the “breathing space” needed to rescue the business or achieve a better result for creditors than immediate closure.
2. Who Gets Paid First?
The law dictates a strict hierarchy for the distribution of funds. Fixed charge holders (typically banks with security over property) are paid first. Once the administrator’s fees are covered, preferential creditors are next; this includes employees (for specific arrears) and HMRC for taxes like VAT and PAYE. Following these are floating charge holders, and finally, unsecured creditors—which include trade suppliers and customers—who are at the back of the queue and frequently receive only a small fraction of their debt.
3. What Happens to Employees?
Entering administration does not mean all jobs are instantly lost. For the first 14 days, the administrator assesses the company’s viability and may make redundancies. If a member of staff is kept on past this 14-day window, the administrator “adopts” their contract, meaning their ongoing wages and rights become a priority expense. Those made redundant can claim for unpaid wages and notice pay via the Redundancy Payments Service if the company has insufficient assets to cover these costs.
4. What About Suppliers and Customers?
Suppliers and customers are generally unsecured creditors. Suppliers should stop granting credit under old agreements and negotiate “pro-forma” (upfront) terms for any new supply to the administrator.
What is Going Into Administration? A Guide for Directors And The Public
What is Going Into Administration? A Guide for Directors And The PublicEmployee Rights in Administration – Guide for worried employees
Employee Rights in Administration – Guide for worried employees