Key2Law (Surrey) LLP -v- De' Antiquis [2011] EWCA Civ 1567
The Court of Appeal issued its long-awaited Judgment in the case of Key2Law (Surrey) LLP -v- De' Antiquis, confirming that businesses which are in administration are not exempted from TUPE.
Under Regulation 8(7) of TUPE, in circumstances where there is a "relevant transfer" involving a transferor which is "subject to bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor", then Regulations 4 and 7 of TUPE will not apply. Regulations 4 and 7 of TUPE are the provisions which operate to automatically transfer employees from the transferor to the transferee and which prohibit dismissals connected with the transfer. Therefore, where Regulation 8(7) applies, there is no automatic transfer of employees under TUPE, meaning that the transferee can acquire the insolvent business and its assets without also necessarily taking on the business's employee related liabilities.
The EAT considered the application of Regulation 8(7) to administrations in Oakland -v- Wellswood (Yorkshire) Limited. In that case, the EAT determined that Regulation 8(7) could apply to the purchase of a business in administration in certain circumstances (including pre-pack sales), the determinative factor being the intention of the administrator at the beginning of the insolvency proceedings.
Subsequently, however, in OTG Limited -v- Barke & ors, the EAT adopted an "absolute" approach, whereby all administrations, including pre-pack administrations, fall outside the scope of Regulation 8(7). Under this absolute approach, Regulations 4 and 7 of TUPE will always apply to the purchase of a business in administration.
Following OTG Limited -v- Barke & ors, we were left with two conflicting decisions from the EAT. However, the Court of Appeal has now clarified matters and confirmed that the EAT's approach in OTG Limited -v- Barke & ors was the correct one.
In the Court of Appeal's Judgment, relying on the evidence of events leading up to the administrator's appointment to determine whether Regulation 8(7) applies, would not necessarily provide certainty as to the administrator's intention at the time of appointment. An administrator has numerous options available to him and his intention may change over time with the original intention never being realised. Furthermore, the administrator's primary objective is always to rescue the company or the business as a going concern, where possible. For these reasons, and taking into account the wording of the Acquired Rights Directive and the necessity for legal certainly, the Court of Appeal held that it cannot be said that the appointment of an administrator is ever "with a view" to liquidating the business's assets, even if it is immediately clear to him that rescue of the business is not possible.
This Judgment is welcome in that it gives us legal certainty in determining the application of Regulation 8(7). However, its practical consequence is that purchasers must be prepared to assume all relevant employee related liabilities of a target business which has gone into administration. Purchasers can no longer rely on the EAT's Judgment in Oakland to argue that there can be no automatic transfer of employees.
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