TUPE and insolvency: EAT considers limited circumstances in which employees do not transfer

Insolvent stamp

In DLA Piper’s case report, the Employment Appeal Tribunal (EAT) examined the TUPE provisions that mean that employees do not automatically transfer where the transferor is “under the supervision of an insolvency practitioner”.

Ward Brothers (Malton) Ltd and others v Middleton EAT/0249/13

Background

This case relates to the special insolvency provisions in the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

Regulation 8(7) of TUPE states that the rules relating to the automatic transfer of employment and protection from transfer-related dismissals do not apply 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”.

This means that, if rule 8(7) applies, employees do not automatically transfer to a new employer on the sale of an insolvent business and can be dismissed prior to the sale without risk of automatic unfair dismissal claims – although the ordinary rules on unfair dismissal still apply. The purchaser of an insolvent business can also offer employees employment on less favourable terms without the risk that these terms will be void.

Facts

Bulmers, a haulage company, was in financial difficulty. HM Revenue & Customs had issued the company with a winding-up petition and Bulmers ceased trading shortly before the petition was heard. On the next working day after Bulmers ceased to trade, Ward Brothers started to carry out Bulmers’ major contracts, engaging those in Bulmers’ workforce who were willing to work under the less favourable terms offered by Ward Brothers. Insolvency practitioners were advising Bulmers in the week before the company ceased to trade, although administrators were not formally appointed until 10 days after trading ceased.

Ward Brothers argued that Bulmers had been “under the supervision of an insolvency practitioner” and so TUPE did not apply when it took over Bulmers’ contracts.

Decision

The EAT decided that reg.8(7) of TUPE did not apply as the insolvency practitioners had not been formally appointed by Bulmers, nor was Bulmers under their “supervision”. The insolvency practitioners had simply been on site in an advisory capacity.

This meant that TUPE applied when Ward Brothers took over the contracts, and the employees who had refused to accept the less favourable terms offered by Ward Brothers were able to bring claims of automatic unfair dismissal and for protective awards for failure to consult against Ward Brothers. Those employees who had accepted less favourable terms were entitled to have their old Bulmers terms honoured.

Comment

This case confirms that for any potential buyer of an insolvent business, TUPE is an ever-present risk. Unless insolvency practitioners have been formally appointed before the sale, there can be no realistic argument that TUPE does not apply. Even where administrators have been appointed before a sale, following the decision in Key2Law (Surrey) LLP v De’Antiquis [2012] IRLR 212 CA, the automatic transfer rules in TUPE will be likely to apply unless the insolvency proceedings were instituted with the purpose of liquidating the company’s assets, rather than rescuing the company.

Jane Cotton, legal director, DLA Piper

XpertHR guidance on TUPE
Comments are closed.