The Court of Appeal judgment in Crystal Palace FC Ltd v Kavanagh and others brings welcome news for administrators and businesses in administration. The Court of Appeal has overturned the EAT and held that the dismissals of some of the football club’s staff were made for an economic, technical or organisational (ETO) reason and so liability did not pass under TUPE to the new owners of the Club, making it easier for them to operate it as a going concern.
The legal effect of “limited recourse” arrangements have been thrown into fresh doubt by a first instance decision of the respected Mr Justice David Richards in the case of Arm Asset Backed Securities S.A. [2013] EWHC 3351.
This decision is relevant to the following common financing arrangements.
In Crystal Palace FC v Kavanagh the Court of Appeal has decided that liability for staff dismissed by the administrator before the sale of the club did not pass to the buyer under TUPE.
The impending abolishment of the ancient common law self-help remedy of distress will affect landlords, tenants and insolvency practitioners.
What is Distress?
The ability of landlords to recover arrears of rent without going to Court, by instructing bailiffs to seize, impound and sell certain goods located at the premises and belonging to the tenant. This right will remain until 6 April 2014, but after that date distress will no longer be available and commercial landlords will instead have to rely on Commercial Rent Arrears Recovery (“CRAR”).
The changes
Since 29 December 1986, the Insolvency Act 1986, as amended by 23 subsequent statutory instruments, has governed the way in which insolvency practitioners, lawyers, creditors, debtors and others dealing with insolvency issues, have addressed procedures such as bankruptcy, administration, liquidation and voluntary liquidation.
In Crystal Palace FC Ltd v Kavanagh & Ors [2013] EWCA Civ 1410, the Court of Appeal considered whether dismissals made by an administrator to keep a business alive with the ultimate aim of selling it were automatically unfair under TUPE, in which case liability would pass to the buyer.
Comment
It is a fact of life that whatever goes up will normally come back down (but not necessarily vice versa). Nowhere is this more keenly felt than in the world of British football, where those clubs that just about stay in the Premier League reap riches that would be the envy of Plutus, Ancient Greek god of wealth, and those that drop out face a desperate chase for money simply to stay afloat.
English schemes of arrangement (Schemes) have become a useful and established procedure for restructuring the debts of foreign companies incurred under English law finance documents. For an overview of why they are useful and how they work, see our July 2011 article "Financial restructurings of foreign companies through English schemes of arrangement".
Whenever there is an apparent monetary debt, common practice is for a claimant to threaten a winding up petition as part of the tactics to get a potential defendant to pay up. Three weeks after a statutory demand letter is sent where an apparent debt for £750 or more exists, a winding up petition can be issued against a company which has not paid (the actual financial wellbeing of the payer is irrelevant as long as they have not paid). Whenever an apparent debt is in dispute this can be a powerful tool to unsettle a defendant.