TUPE does apply to ‘pre-packs’

Posted: 26th January 2012

Regulation 8(7) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) provides that where the transferor 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 transferor and are under the supervision of an insolvency practitioner, the transfer provisions of TUPE do not apply. In such circumstances, employees do not automatically transfer to the new owner and any dismissals are not automatically unfair.

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There had been uncertainty as to the exact interpretation of ‘analogous insolvency proceedings’ but the Court of Appeal has now ruled in Key2Law (Surrey) LLP v De’Antiquis that the exception does not apply to administration proceedings under Schedule B1 of the Insolvency Act 1986.
In the Court’s view, an administration is not outside the TUPE rules because it cannot be said to have been ‘instituted with a view to liquidation’ of the company’s assets. The primary statutory objective of an administrator when appointed is to rescue the company as a going concern, even though this may subsequently prove to be impossible.
Accordingly, the Court held that a transfer of liabilities under TUPE will take place where a company is placed into administration and the business is subsequently transferred, as is the case with so called ‘pre-pack’ administrations.
The approach advocated in the 2009 case of Oakland v Wellswood (Yorkshire) Ltd.), whereby the decision as to whether the TUPE provisions apply will depend on the intention of the administrator regarding the transfer of the insolvent business, was judged to be inappropriate in such circumstances.
Subject to any appeal, this decision means that the employment rights of employees will be protected when a company is sold following a pre-pack administration.