A case in the Employment Appeal Tribunal (EAT) has considered the difference, from an employment point of view, between administration and the appointment of provisional liquidators.

Details

The claimants worked for a company which provided care home attendants.  On 26 March the directors resolved that it was in the best interests of the creditors to apply to have the company wound up.  A winding up petition was lodged on 30 March along with an application for provisional liquidators to be appointed.

On 1 April the provisional liquidators were appointed. To ensure that the services provided by the employees of the company would continue uninterrupted, the company made arrangements for the employees to transfer to another company and the employment of the claimants with the transferee company began on 2 April.

On 27 April a winding up order was granted and joint liquidators were appointed on 18 June.

The claimants sought payment of arrears of wages, holiday  notice and redundancy pay, and the issue was whether the insolvency exception set out in TUPE applied in the case of the appointment of a provisional liquidator.

TUPE Regulation [1] states that where the transferring business is the subject of bankruptcy or insolvency proceedings instituted “with a view to the liquidation of the assets of the transferor”, the employees will not transfer and any dismissals connected with the transfer are not automatically unfair.

The Court of Appeal has previously decided that administration proceedings are not capable of coming within the insolvency exception.  The normal TUPE rule that employment obligations transfer will therefore always apply in an administration.  Initially, the tribunal found that there was no transfer.  This was appealed and the second tribunal held that there was a transfer and that the appointment of a provisional liquidator was similar to administration proceedings. Therefore the insolvency exception did not apply and all liabilities would pass to the transferee company.

That decision was appealed and the EAT held that the two sets of proceedings were not, in fact, similar. In allowing the appeal the EAT found that the second tribunal had failed to provide sufficient reasons for its decision. In particular, it had failed to explain why it felt the case was analogous to administration proceedings rather than liquidation proceedings.  The key point in administration proceedings is that an administrator’s primary objective is to rescue the company as a going concern, which is not the case when provisional liquidators are appointed.

The case has therefore been remitted to the Tribunal for a fresh decision. We will keep you posted!

This post was edited by Lisa Smith. For more information, email blogs@gateleyplc.com.

[1] 8(7) of The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.