Administrators Beware

9th Mar 2011

Administrators Beware

A recent case before the Employment Appeals Tribunal has held that in all cases of administration, including pre-pack administrations, employees will transfer to the buyer and have special protection against unfair dismissal.

On 16 February 2011 the Employment Appeals Tribunal handed down its judgment in the case of OTG Limited v Barke & Others.  The case related to five appeals which were listed together because they raised the same question of law.  In essence that question was whether administration proceedings under Schedule B1 Insolvency Act 1986 “constitute, or may constitute, insolvency proceedings instituted with a view to the liquidation of the assets of the transferor” within the meaning of Regulation 8(7) Transfer of Undertakings (Protection of Employment) Regulations 2006.  The reason this question is relevant is that where Regulation 8(7) of TUPE applies, Regulation 4 of TUPE would not apply.  The effect would be that in administration proceedings an Administrator is able to sell the business to a new company without the employees being transferred over.

Previously, the leading case on this matter was the case of Oakland v Wellswood (Yorkshire) Limited.  In this case it was held that administration proceedings under Schedule B1 Insolvency Act 1986 did constitute insolvency proceedings within the meaning of Regulation 8(7) TUPE.  The effect was that within all administrations, including pre-pack administrations, employees did not transfer from the old company to the new company where the business was sold by the Administrators.  The new company could therefore purchase the business of the old company without the added worry that the employees would be transferred over and would therein inherit all of the contractual obligations in relation to those employees.  

The recent case of OTG Limited v Barke & Others has now altered this position.   At the Employment Appeals Tribunal, Mr Justice Underhill ruled that all administrations within the meaning of Schedule B1 Insolvency Act 1986 are not capable of “constituting bankruptcy or analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor” within the meaning of Regulation 8(7) TUPE 2006 and Article 5.2 of the Acquired Rights Directive. 

The outcome is that as a result of the ruling in the OTG case, Administrators should be alert to the fact that on a sale of a business in administration, including in a pre-pack situation, the employees will transfer to the buyer automatically under the provisions of TUPE 2006 and will therein have special protection against unfair dismissal.  
 

For more information contact Paul Monaghan on 0191 221 0898 or email paulm@bhplaw.co.uk