Insolvency and TUPE

Most business managers are aware in general terms of the effect of TUPE – the “Transfer of Undertakings (Protection of Employment) Regulations 2006”.  The aim is clear enough – to ensure that employees are not disadvantaged when the organisation they work for changes hands.   The language of the regulations however, with its talk of “undertakings” rather than businesses and of transferees and transferors rather than buyers and sellers makes it difficult to follow, added to which are its many rules covering unusual situations.  One of the commonest of these is when a business goes into administration.  In such a case the objective of protecting employees conflicts with the public interest in rescuing businesses, even at the risk of redundancies or pay cuts.There are a number of exceptions to TUPE in such cases, and so it is important to know whether the situation falls within the statutory exception.  Many jobs and the survival of the business may depend on it, and this is an increasing common situation, so there may be no alternative to going over the statutory wording with care.Regulation 8(7) provides that where the business is the subject of bankruptcy proceedings “or any analogous insolvency proceedings that have been instituted with a view to the liquidation of the assets of the transferor [old owner] and are under the supervision of an insolvency practitioner” the transfer provisions of TUPE do not apply.In such circumstances, employees do not automatically transfer to the new owner and any dismissals are not automatically unfair.It was never quite clear what these analogous insolvency proceedings were.  Did that include administration or not?  Now, in an important decision on this issue, the Court of Appeal has ruled (Key2Law (Surrey) LLP v De’Antiquis) that this exception does not apply to administration proceedings under Schedule B1 of the Insolvency Act 1986.Ms De’Antiquis was made redundant from her job as a solicitor a few days before the firm she worked for, Drummonds Kirkwood LLP (DK), went into administration. The administrators entered into a management contract with Key2Law (Surrey) LLP under which the part of the business in which Ms De’Antiquis worked was transferred to it. Ms De’Antiquis brought a claim for unfair dismissal against Key2Law on the ground that this was a TUPE transfer.  Key2Law argued that the exception should apply as DK was in administration.The Court of Appeal held that an administration is not outside the TUPE rules because it cannot be said to have been ‘instituted with a view to liquidation’ of the company’s assets. The primary statutory objective of an administrator when appointed is to rescue the company as a going concern, even though this may subsequently prove to be impossible. Accordingly, the Court held that a transfer of liabilities under TUPE will take place where a company is placed into administration and the business is subsequently transferred.Previously the approach of the courts to this question had been a firm, “maybe”, or more correctly that a “fact-based approach” was required (as decided in the 2009 case of Oakland v Wellswood (Yorkshire) Ltd) whereby the question depended on the intention of the administrator – was he planning to wind up the company or getting it back in business?  This has now been rejected as inappropriate.  What is required, the Court of Appeal decided, is an ‘absolute’ approach to the provisions to achieve legal certainty, since all those involved will know where they stand.According to Eoin Fowell, Partner, Wolferstans “Subject to any appeal, this decision means that the employment rights of employees have to be respected when a company is sold following a ‘pre-pack’ administration. If you are contemplating buying or selling a business, we can advise you to ensure that your decision is made after consideration of all the relevant factors.” For further information and advice please contact Eoin Fowell on 01752 292350 or email efowell@wolferstans.com