Tata Steel Limited (Tata) has been intending to end their British operations for some time. As yet, it has been unable to do so as its subsidiary, Tata Steel UK (TSUK), is the principal employer of one of the UK’s largest defined benefit (DB) schemes. The obligations and liabilities under the British Steel Pension Scheme (BSPS) have been deemed by prospective buyers as too great to take on with the Scheme currently running at a deficit of approximately £700 million.

Introduction

In the current economic climate, landlords are having to deal more frequently with tenants who are in administration. Where the administrators of the tenant are using the property for the purposes of the administration, the moratorium on forfeiture and irritancy proceedings that applies in administrations means that the landlords are unlikely to be able to recover the property in order to relet it.

This recent case in the Employment Appeal Tribunal (EAT) is one of the first to examine how the insolvency provisions in the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) should apply and, in particular, the circumstances in which employment liabilities passed under TUPE to the buyer of the assets of an insolvent company.

Facts

This case involved a "pre-pack" administration.

In the very early hours on September 20, 2008, the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") entered an order (the "Sale Order") approving the sale of substantially all of the assets of Lehman Brothers Holdings, Inc. ("Lehman"), LB 745 LLC and Lehman Brothers, Inc. (collectively, the "Lehman Sellers") to Barclays Capital, Inc. free and clear of all liens claims, encumbrances and other interests.

As has been widely reported, on September 15, 2008, Lehman Brothers Holdings, Inc. ("Lehman") filed for protection under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Except for LB 745 LLC which is the Lehman entity that was formed to own Lehman's headquarters in New York, the other subsidiaries (the "Lehman Subsidiaries") of Lehman have not filed for bankruptcy protection as of the time of publication of this Alert.

The recent downturn in the economy is undoubtedly having an adverse effect on the cash flows of a large number of businesses in the UK. Businesses are keeping a much closer eye on outgoings and expenses, and may be looking to ease financial pressure by making payments due to creditors as late as possible.

For a business operating from leased premises, quarterly rental payments are likely to be one of the biggest outgoings. The longer the rental payment remains in the tenant's bank account, the more interest they will accrue and the more likely that cash flow issues will be eased.

The Court of Appeal in Haine v Secretary of State for Business Enterprise & Regulatory Reform has held that where redundancies are made in breach of obligations to carry out collective consultation and the employer then goes into insolvency, a protective award subsequently ordered by an employment tribunal is a debt in the liquidation.

Impact on employers

Customers dealing with troubled automotive suppliers often decide to resource production to other suppliers rather than facilitate a true restructuring of the troubled supplier's business. Such resourcing, however, generally cannot be done overnight. Tier 1 suppliers or original equipment manufacturers ("OEMs") often take months to resource production. Because of the "just in time" production process, Tier 1 suppliers and OEMs often cannot afford to be without component parts or tooling for the period of time that it may take to resource.

The subject of gratuitous alienations is a problematic area for the property practitioner. Timing is all-important, and often it only becomes an issue for insolvency reasons retrospectively. Put simply of course, in lay terms a gratuitous alienation is no more than a gift, and there is nothing to prevent an owner of property gifting it to someone if he chooses.