TUPE and companies in administration

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21 February 2011

The Employment Appeal Tribunal has held that administrations are not capable of amounting to insolvency proceedings instituted with a view to the liquidation of the assets of the seller.   This means that, in a sale of a business by a company in administration, the employees of the seller will transfer to the buyer and will have the usual protection against unfair dismissal under TUPE.  This applies to all administrations, including pre-pack administrations.

This decision departs from existing case law and appears to settle a long running debate about the application of TUPE in administrations.  

Further details are set out below.  

The TUPE Regulations make a distinction between two types of insolvency proceedings affecting the seller, and the effect that those types of insolvency proceedings can have on a relevant transfer:

Regulation 8(6) of TUPE provides that:

Where the seller is subject to "relevant insolvency proceedings" at the time of the relevant transfer, TUPE relaxes the general provisions relating to the automatic transfer of debts and the restriction on changing terms of employment as follows:

  • some of the seller's debts to employees will not transfer to the buyer, but will be paid out of the National Insurance Fund by the Redundancy Payments Office.  Included are statutory redundancy payments, arrears of pay and holiday pay. However, the amounts payable are subject to maximum limits and the buyer will be liable for all debts in excess of the maximum limits
  • there is greater scope to vary the terms of employment of the transferring employees.

Regulation 8(7) of TUPE provides that:

Where the seller is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the seller and are under the supervision of an insolvency practitioner, the employees will not automatically transfer to the buyer and any dismissals will not be automatically unfair.  

The effect of the decision is that, where the transferor is in administration and the business, or parts of it, are sold to a buyer, the transfer will fall within Regulation 8(6) of TUPE, so that the employees of the seller will transfer to the buyer in the normal way, subject to the provisions regarding transfer of debts and the ability to vary terms and conditions set out above.

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