Legal opinion: TUPE after Key2Law – transfers of companies in administration

The vexed question of TUPE and companies in administration has again come into the spotlight in the Court of Appeal in Key2Law v De’Antiquis.

When a liquidator sells a business, neither the liquidator nor the purchaser need worry about employees transferring under TUPE because reg.8(7) disapplies the relevant parts of the Regulations. The contentious issue is whether or not a business sold by an administrator is also exempt in the same way. Case law had suggested that were the ultimate objective of the administrator to liquidate the business following a brief period of trading, TUPE would not apply because the administration was “analogous” to insolvency proceedings (Oakland v Wellswood (Yorkshire) Ltd). This has now been refuted by the Court of Appeal in Key2Law, which ruled that reg.8(7) of TUPE does apply in an administration and that, therefore, employees will be transferred to the purchaser under TUPE when the seller is in administration.

The first practical implication is that, should you purchase from an administrator, you can expect any employees to come with their terms and conditions of employment protected under TUPE. Those employees would have had the right to be consulted prior to the transfer and if this did not take place they will be able to claim protective awards. So at least the position is certain, for the time being.

The real problem is that purchases from administrators are often “shotgun fashion”, with the administrator anxious to achieve a quick sale and the purchaser just as eager to pick up a cheap asset. There is not usually the time or the inclination for the purchaser or seller to undertake the usual TUPE consultations. Administrators are often “trigger happy” when it comes to dismissals (their objective is to shed liabilities and to sell any assets or business as quickly as possible), so the scope for claims of unfair dismissal for reasons connected with the transfer, and protective awards, is hugely enhanced. This is unlikely to change in the recession. The danger to purchasers from administrators is therefore very high; even more so as a result of the Key2Law decision as the previous “escape route” provided by Oakland is no longer available.

Short of going through the full and proper TUPE consultations, there is no remedy for this. The result is increased protection for employees and discouragement to buyers who will now be less willing to purchase assets from a company in administration.

So the focus must be on carrying out the usual full TUPE consultations (if possible) when purchasing from an administrator. Outside of this there is really very little protection against TUPE unless it is possible to argue that TUPE does not apply on some other ground. These other grounds could be to argue that no actual undertaking has been transferred – obviously this is a fact sensitive defence and depends on analysis of what has actually transferred to the purchaser. Any redundancies for a reason connected with the transfer might also be justifiable if it can be shown they were made on economic, technical or organisational grounds entailing changes in the workforce.

You could also look for indemnities from the administrator, but if the company represented by him is going into liquidation, there will be no-one to enforce the indemnities against, so they will not be worth much. The only other “protection” is to ensure that the assets are purchased as cheaply as possible so as to factor in the potential cost of any TUPE claims.

Following Key2Law and the recent decision in Spaceright Europe Limited v Baillavoine (that dismissals can be in connection with the transfer even where no prospective transferor has been identified), it is going to be far more difficult for administrators to sell the assets of a company in administration and prospective purchasers/employers are going to be more cautious. This is not good in the context of a severe recession.

But the story is not over. Permission is being sought to appeal Key2Law to the Supreme Court and, potentially, to have it referred to the European Court of Justice. So the law is settled – but only for the time being!

David Malamatenios, employment partner, Colman Coyle

FAQs on TUPE from XpertHR

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