Financiers & Entrepreneurs beware
SOURCE: INSIDER, SEPTEMBER 2007
TUPE 2006 seeks to clarify the application of TUPE in insolvency situations and promote a rescue culture. It provides that:
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where the intention behind insolvency proceedings is to rescue a business and where those proceedings are under the supervision of an insolvency practitioner, then the Secretary of State becomes liable for certain employee debts; and
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Where the intention is simply to liquidate assets, employees do not transfer and dismissals are not automatically unfair.
The facts behind Secretary of State for Trade & Industry -v- Slater were not unusual. On 25 July 2006, directors of a company decided to commence a creditors' voluntary winding up. Staff were made redundant on 26 July and the day after there was an MBO of the business. A liquidator was appointed on 16 August.
The issue was whether the new MBO company or the Secretary of State would be liable for employee debts. This turned on whether insolvency proceedings had been commenced by the directors resolving to wind up the company, or whether they were only commenced by the formal appointment of a liquidator.
It was decided that it would be illogical for insolvency proceedings to commence on different dates for TUPE and general insolvency law. The insolvency proceedings commenced with the appointment of a liquidator. Therefore, the new MBO company was liable for employee debts because the business transfer had taken place before the commencement of insolvency proceedings.
Financiers and entrepreneurs need to be aware of the importance of ensuring that conditions are satisfied before assuming that the TUPE insolvency provisions will apply in a given situation and, if necessary, making transfers conditional upon the appointment and consent of an insolvency practitioner. By being alive to this notion they can understand whether or not TUPE can come to their rescue.
AUTHOR: ALISON GOW
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