There are essentially three types of insolvency proceeding: liquidation, receivership and administration. Liquidators realise and distribute a company’s assets before dissolving the company. Receivers usually realise certain secured assets to repay certain debts, before appointing a liquidator. However, an administrator’s first objective is to rescue the company as a going concern. It is only if this is not practicable that the administrator can realise and distribute a company’s assets.

The much awaited EAT decision inOTG Ltd v Barke and others (formerlyOlds v Late Editions Ltd) was delivered on 16 February. As expected, the EAT has taken the view that an administration cannot amount to “bankruptcy” or “analogous insolvency proceedings” for the purposes of Regulation 8(7) of TUPE. So, on a sale by an administrator (even in a pre-pack administration) TUPE will apply.

In more detail

The full force of TUPE is relaxed in relation to insolvent transfers as follows:

In August we reported that the Court of Appeal had expressed doubts as to whether the EAT in Oakland v Wellswood was right to suggest that pre-pack administrations could be insolvencies "begun with a view to liquidation" (so that TUPE does not apply to transfer employees).

Last year, in the case of Oakland v Wellswood (Yorkshire) Ltd, the EAT suggested that, if an administrator has been appointed with a view to liquidating a transferor company, this fell within the exception provided by TUPE Regulation 8(7) (which provides that where there are insolvency proceedings instituted with a view to liquidation, the key employee protections afforded under TUPE do not apply). This ran contrary to government guidance.

In August we reported that the Court of Appeal had expressed doubts as to whether the EAT in Oakland v Wellswood was right to suggest that pre-pack administrations could be insolvencies "begun with a view to liquidation" (so that TUPE does not apply to transfer employees).

On 17 September the DWP published a consultation paper (attaching draft regulations) in which it proposes that certain corporate restructurings will not trigger an employer debt under section 75 of the Pensions Act 1995. Following on from amendments introduced by regulations in 2008, the draft regulations also make some technical amendments to the employer debt regime, which are intended to ease its operation in practice.

Section 75: a reminder

The Court of Appeal has heard the appeal in Oakland v Wellswood (Yorkshire) Ltd. Although its written judgment has not yet been published, it appears that it heard an appeal only on a narrow point of employment law and did not give definitive guidance on the application of the insolvency provisions in the TUPE Regulations which had been the principal issue in the EAT.

The Employment Appeals Tribunal (EAT) has decided that the sale of a business by way of a pre-pack administration[1] did not result in a transfer of employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006, (TUPE Regulations or TUPE).

TUPE Regulations

An employment appeal tribunal has ruled that TUPE does not apply to all sales by administrators. On this view, whether TUPE applies will depend on the objectives of the administrator when appointed. In this case it was clear from the outset that continuing to trade was not viable and an immediate sale of the company’s assets was required to secure the best outcome for creditors. That put the administration in the category of “terminal” insolvency proceedings, for which a complete exemption from TUPE applies.

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.