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TUPE transfers – formal appointment date is
key
The liabilities of an insolvent business will go over to the
transferee if the TUPE transfer date precedes the date of formal
appointment of an insolvency practitioner, unless the sale is made
provisional on the appointment. This is the effect of the
Employment Appeal Tribunal's (EAT) ruling in the case of
Secretary of State for Trade and Industry v Slater
[2007] IRLR 928.
The TUPE insolvency rules
The Transfer of Undertakings (Protection of
Employment) Regulations 2006 ("TUPE 2006") extended the previous
1981 TUPE Regulations and introduced a number of additional
measures relating to insolvency situations, aimed at facilitating
the sale of failing businesses. One of these is to give a degree of
protection to the transferee of a business by providing that where
there are "relevant insolvency proceedings" in existence in
relation to the transferor, the liability for paying employees does
not move across to the transferee but instead is met out of the
Government insolvency fund.
Early transfer defeated exclusion of
TUPE rules
The TUPE 2006 scheme draws a distinction
between insolvency proceedings aimed at liquidating the assets,
which are covered by Regulation 8(7) and insolvency proceedings
that are not begun with this objective, dealt with under Regulation
8(6). In the former case there is no transfer of employees and
therefore no liability transferred and in the second case there is
a transfer but there is a limit on the extent of liability taken on
by the transferee. In both cases the legislation requires the
insolvency proceedings to have been commenced as at the date of the
transfer and to be under the supervision of an insolvency
practitioner. Regulation 8(7) uses the expression "proceedings
which have been instituted" and Regulation 8(6) refers to
"proceedings which have been opened".
In Slater the EAT had to
decide when the insolvency proceedings had been commenced for the
purposes of TUPE, i.e. was it was before or after the date on which
the undertaking was transferred? On 25 July 2006 the directors of
the company in question, CFG Site Services Limited, had decided
that the company was insolvent and should be put into creditors'
voluntary liquidation. The following day, pending the shareholder
and creditors meetings, Deloittes were called in to give redundancy
notices to the staff and to value the stock. A consortium of the
former directors formed a company and on 27 July 2006 purchased the
business. Deloittes were formally appointed liquidators for the
transferor following the creditors' meeting on 16 August 2006.
The transferees argued that the insolvency
proceedings had commenced when the directors took the preparatory
steps to wind up the company on 25 July 2006. The EAT rejected this
and ruled in favour of the Secretary of State. It said that the
relevant date had to be the same under TUPE as under the insolvency
legislation. There was no basis in law for fixing a different
starting point for TUPE. TUPE does not provide for this and it
would lead to considerable uncertainty if this were the case. In
Slater, therefore, the EAT found that the
insolvency proceedings had not been commenced by the time of the
TUPE transfer and so the liabilities would not be met under the
Secretary of State's guarantee. The purchaser picked up all those
liabilities.
How to avoid the problem
The EAT recommends (as do we), that the terms
of any proposed sale before a transfer must make the sale
provisional and conditional on the appointment and approval of the
liquidator.
For more information or advice, please contact
Dominic
Offord, Dawn Lobley or Ray
Silverstein.