TUPE and Insolvency

Regulation 8(7) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) disapplies the normal rules that apply when there is a relevant transfer of a business if ‘the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner’.

In Ward Brothers (Malton) Limited v Middleton and Others, the Employment Appeal Tribunal (EAT) ruled that for the transferor to be ‘under the supervision’ of an insolvency practitioner, the insolvency practitioner must have been appointed to act as its liquidator, provisional liquidator, administrator or administrative receiver, in accordance with Section 388 of the Insolvency Act 1986.

In 2010, Bulmers Transport Limited found itself in severe financial difficulties and was issued with a winding up petition by HM Revenue and Customs that was scheduled for hearing on 9 February 2011. Bulmers ceased to trade on Friday 4 February. Before that, the company had been in discussions with Ward Brothers (Malton) Limited, with a view to the latter taking over its haulage contracts. As a result, when Bulmers closed, its workforce was transferred to Ward Brothers on what were said to be less generous terms and conditions than previously. Bulmers subsequently went into liquidation and was formally dissolved.

With the backing of their trade union, Unite, 13 employees launched proceedings against Ward Brothers on the basis that TUPE applied to the transfer. Ward Brothers argued that the relevant parts of TUPE had no application to the case as Bulmers had been ‘under the supervision’ of insolvency practitioners, within the meaning of Regulation 8(7), at the time that the transfer took place.

The Employment Tribunal (ET) rejected Ward Brothers’ arguments. Bulmers had ceased trading on 4 February 2011 and the administrators were not appointed until 14 February 2011. Although a different firm of administrators had acted in an advisory capacity prior to that date, there had been no appointment, whether provisional or final. There was, therefore, a relevant transfer for the purposes of TUPE.

Ward Brothers appealed against the ET’s decision and lost. In reaching its decision, the EAT lamented as ‘extremely unfortunate’ the uncertainty that so often prevails amongst employers, employees and their advisers as to the correct application of TUPE.

In the EAT’s view, the interests of certainty favoured a ‘red line test’ in such circumstances and, on the individual facts of the case, that line was not crossed. Bulmers had not come under the supervision of insolvency practitioners until the date of their actual appointment. That had not occurred until about a week after the workforce was transferred to Ward Brothers and TUPE therefore applied.

If you are seeking to acquire a business in administration, contact Clare Towers for advice.