Lychee Ltd has suffered a significant loss of business due to the COVID-19 pandemic. As a result, they have had to terminate one of their employees to reduce their payroll costs. However, the employee has sued Lychee Ltd claiming that they were not given an appropriate notice period and are entitled to receive a severance package equivalent to 12 months of their salary. The lawyers have advised Lychee Ltd that it is likely that they will lose the case and may have to pay the severance package to the employee.

Required:

Should Lychee Ltd recognize a liability for this event? Justify your answer by reference to the definition and recognition criteria as per the Conceptual Framework. (5 Marks)