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TUPE transfer ruling may make it easier to buy assets from a company in administration
8 January 2009
As a result of an important Employment Appeal Tribunal (EAT)
ruling buyers can, in certain circumstances, take on assets from a
business in administration without employees transferring to the
buyer. This goes against previous Government advice that the
Transfer of Undertakings (Protection of Employees) Regulations 2006
(TUPE) always applied to transfer employment
contracts in transfers made in the context of administration.
TUPE Regulations
The TUPE Regulations themselves do not comprehensively define
which type of insolvency procedures fall within TUPE and which do
not, so ultimately it is for the tribunal and courts to decide.
Regulation 8(7) provides that employees do not transfer under TUPE
where "the transferor is the subject of bankruptcy proceedings or
any analogous insolvency proceedings which have been instituted
with a view to the liquidation of the assets of the transferor and
are under the supervision of an insolvency practitioner".
Previous Government advice
According to previous guidance published by the Department for
Business, Enterprise and Regulatory Reform (BERR), the main purpose
of administration is not to realise assets for the creditors and so
the process is not "analogous" to bankruptcy so employees would
transfer under TUPE.
EAT ruling
In Oakland v Wellswood (Yorkshire) Ltd assets were transferred
by a company in administration by way of a 'pre-pack'
administration business sale, i.e. a sale all but agreed before the
administrator was appointed, to a wholly owned subsidiary set up by
one of its major suppliers. An employee and co-director of the
original company claimed unfair dismissal. Contradicting the BERR
advice, the EAT held that the administration was in fact conducted
with a view to the liquidation of assets and therefore the claimant
did not transfer under TUPE and the EAT rejected the employee’s
appeal.
The EAT looked at the joint administrators’ report. The EAT
agreed that TUPE would protect employees where administrators
continued to trade with a view to selling the business as a going
concern, but in this case the administrators had soon reached the
conclusion that due to its weak financial situation the business
could not be saved and they took steps to sell the assets
immediately following their appointment. Based on the facts, the
Tribunal had been entitled to conclude that the appointment of the
administrators was with a view to the eventual liquidation of the
assets by way of a creditors' voluntary liquidation. This approach,
said the EAT, was in line with the 'rescue culture' policy behind
the legislation, whereby a purchaser should not be put off by the
effects of TUPE protection. As a result, at least some jobs were
saved and the creditors benefited from the best option.
The decision is to be welcomed in the current climate as it
reflects the fact that in many cases administration is a prelude to
winding up in order to secure a better result for creditors. Where
it is obvious at the outset that rescue is not a viable prospect,
this ruling should make it easier to sell a business, as clearly
the opportunity will be more attractive to a buyer if it is able to
leave employment liabilities behind. However, where rescue appears
to be at least a possibility at the outset, buyers would still need
to assess and provide for potential liability for employment
claims
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