This article originally appeared in Jones Day's HR Headlines - March 2011
Administrations, including "pre-packs", are not capable of constituting "insolvency proceedings...instituted with a view to the liquidation of the assets of the transferor" within the meaning of Regulation 8(7) of TUPE. Where there is a sale of an undertaking by an administrator, the employees assigned to the undertaking will automatically transfer to the buyer and receive unfair dismissal protection.
Key facts
Regulation 8 deals with the application of TUPE on insolvency and distinguishes between situations where the insolvency proceedings have been instituted "with a view to the liquidation of the transferor's assets" (Regulation 8(7)) and situations where they are not (Regulation 8(6)). Where Regulation 8(7) applies, the automatic transfer principle in TUPE is disapplied and any dismissals by reason of a transfer are not automatically unfair. On the other hand, where Regulation 8(6) applies, the employees will automatically transfer and receive unfair dismissal protection. Modified rules will also apply regarding the extent of the liabilities acquired by the transferee and its ability to vary employees' terms and conditions.
The EAT was required to consider five appeals which were listed together because they all raised the question of whether Regulation 8(7) applies where there is a transfer by a company in administration under Schedule B1 of the Insolvency Act 1986 (four of the five cases involving pre-pack sales). In particular, the EAT had to make an authoritative decision about which is the correct approach: the "absolute approach" that administrations can never come within Regulation 8(7); and the "fact-based approach" that they may do so if it is found as a matter of fact that the administration was instituted with a view to the liquidation of the transferor's assets. The fact-based approach was most recently adopted by the EAT in Oakland v Wellswood which concerned a pre-pack sale of a business by an administrator.
The decision
The EAT departed from its earlier decision in Oakland v Wellswood and adopted the absolute approach that administrations, including pre-pack sales, are not capable of falling within Regulation 8(7). In reaching his decision the President of the EAT adopted a purposive interpretation of TUPE and commented that a fact-based approach inevitably increases the likelihood of disputes as to who is liable for the transferor's obligations resulting in cost, delay and uncertainty.
What this means for employers
Following this decision, buyers of businesses in administration should be aware that any employees assigned to the business will automatically transfer with the business and will be protected against unfair dismissal, although the modified rules regarding the transfer of liabilities and changing terms and conditions will apply.
OTG Ltd v Barke and others [2011] UKEAT/0320/09
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