When an employer is insolvent and administrators appointed, job losses are often an inevitable consequence. In this blog we look at the legal obligations arising where redundancies meet the threshold for collective consultation, and the implications for administrators arising out of the recent Supreme Court in the case of R (on the application of Palmer) v Northern Derbyshire Magistrates Court and another.

When does the legal obligation to collectively consult apply?

On 24 February, the Government published draft regulations that, if implemented, will impose new restrictions on pre-pack administration sales to connected parties. For all `substantial disposals' (which will include `pre-pack' sales) to connected parties, taking place within eight weeks of the administrators' appointment, the administrators will either need creditor consent or a report from an independent `evaluator'.

Context

When a defaulted borrower files a bankruptcy petition, two important events occur: (1) a bankruptcy “estate” comprised of certain assets of the debtor is created; and (2) all collection efforts (and pending litigation) against the debtor or its assets are automatically stayed. Accordingly, the court’s determination of whether items are or are not property of the debtor and of the bankruptcy estate is of critical importance to the creditor’s ability to collect on its debt.

In a ruling on February 28, 2013, the U.S. District Court for the Central District of Illinois reversed the February 29, 2012 order of the U.S. Bankruptcy Court for the Central District of Illinois allowing a bankruptcy trustee to avoid an Illinois mortgage as to unsecured creditors for lack of “constructive notice” because the mortgage did not expressly state the maturity date of and interest rate on the underlying debt (In Re Crane, Case 12-2146, U.S. Dist. Ct., C.D. IL, February 28, 2013).