James Willis

Head of Employment

stevensdrake solicitors

Administration and employment law

Administration Commonly initiated insolvency process

HMV, Comet, Clinton Cards, JJB Sport, Jessops 32 significant retail chains in administration in last year (FRP

Advisory)

Aimed at facilitating the rescue of an ‘insolvent’ company

Various employment law issues arise

Plenty of interesting(?) case law of late

The role of the Administrator

They are appointed to manage the affairs, business and property of the company

They must act: fairly and reasonably in the interests of the creditors as a whole

They are agents of the company, acting on behalf of the company

The role of the Administrator (cont’d) Administrator must perform his functions with the

objective of:

rescuing the company as a going concern

achieving a better result for the creditors as a whole than if the company were wound up without first being placed in administration

realising property in order to make a distribution to one or more secured preferential creditors

Objectives have a strict order of hierarchy

Employment contracts

The Administrator has to decide whether to ‘adopt’ the contracts of employment

‘Adoption’ is an all or nothing deal (Powdrill v Watson (1995))

Normally deemed to have adopted employment contract, if employment relationship continues for 14 days after appointment

Employment contracts Once adopted:

wages and salary (including holiday pay and sick pay) contributions to pension schemes

have ‘super priority’ over most other liabilities (including Administrator’s fees and expenses)

Bonuses - are they due under the contract?

Some liabilities do not have ‘super-priority’ status, eg: statutory redundancy payments damages for wrongful dismissal some payments in lieu of notice

NB Preferential debts and ordinary unsecured debts

Redundancies What if a redundancy situation arises during the

administration?

The normal rules apply Collective consultation

20 or more redundancies = 30 days’ consultation 100 or more redundancies = 90 days’ consultation

Individual consultation Abide by normal standards of good practice

Do as much as you can

And take care…

TUPE - it can trip you up What is a TUPE transfer?

When a business (or part of one) transfers from one person to another; or activities are contracted-out, contracted-in or re-tendered

the employees transfer along with the business/activities.

What are the implicatons of a TUPE transfer? All liabilities etc transfer with the employees

Employment contracts cannot be changed

Obligation to inform (and consult) employee representatives

Obligation to provide ‘Employee Liability Information’

TUPE transfer-related dismissals are automatically unfair

Spaceright v BaillavoineThe facts: Company went into administration CEO (Bruno Baillavoine) was dismissed Business and assets sold as a going concern a month later BB claimed that he’d been automatically unfairly dismissed

The decision: Not a genuine redundancy – company needed a CEO Dismissal aimed at making business more attractive Dismissal automatically unfair (it was connected with a proposed

TUPE transfer) Liability may transfer to purchaser

Disciplinary and grievance handling Follow normal policies and procedures

Follow ACAS Code of Practice on Disciplinary and Grievance Procedures

Put simply… Letter Meeting Outcome (with opportunity to appeal)

Administrators’ Liabilities

Wright Hassell LLP v Morris Administrator instructed lawyers under CFAs

Lawyers went unpaid (Boo! Hiss!)

Lawyers sued successfully (Hooray!)

Lawyers couldn’t hold administrator personally liable (Hmm!)

Employment Claims Claimants need to file a claim before time limit expires

Claims likely to be ‘stayed’, pending consent from the Court or Administrator

Each request viewed on its own merits

Insolvency and TUPE TUPE 2006 intended to encourage a ‘rescue culture’

Two types of insolvency proceedings under TUPE 2006:

“Bankruptcy proceedings or analogous insolvency proceedings…instituted with a view to [liquidation]”

“relevant insolvency proceedings” opened not with a view to liquidation

What about Administration?

Contradictory decisions Oakland v Wellswood (EAT)

‘Fact-based’ approach (depends on intentions of Administrator etc) OTG Limited v Barke (EAT)

‘Absolute’ approach Administration can never constitute ‘bankruptcy or analogous insolvency proceedings’

Key2Law (Surrey) LLP v De’Antiquis (CA) Solicitors – again! Law firm (LLP) in administration ‘Absolute’ approach is correct Administration is ‘relevant insolvency proceedings’

Appeal to Supreme Court?

Bankruptcy proceedings etc…

Main TUPE provisions don’t apply

But the obligations to inform and consult still do

A rather odd picture emerges

‘Relevant insolvency proceedings’ TUPE applies (with amendments)

Some liabilities remain with transferor (and can be claimed from NI Fund) eg: up to 8 weeks’ arrears of pay pay in lieu of statutory minimum notice period up to 6 weeks’ holiday pay Basic Award / Statutory Redundancy Payment

All other liabilities still transfer

Some variations to employment contracts permitted Transferor/Transferee and employee representatives can agree changes Must safeguard employment by ensuring survival of business Employee agreement required? Too complicated / too risky?

Pressure Coolers v Molloy (2012)The facts: Mr Molloy employed by Maestro Plans to sell assets via a ‘pre-pack’ to Pressure Coolers (PC) PC asked for Molloy and 6 others to be dismissed Sale proceeds, but dismissals not effected until after transfer Molloy brings claims for unfair dismissal, wrongful dismissal, age

discrimination, failure to consult etc

The decision: Molloy’s claims succeeded against PC Liabilities arose out of dismissal occurring after transfer Liabilities rested with PC, not with Maestro / NI Fund

Pressure Coolers v Molloy (2012)

Points to note Watch out for a buyer’s demand for dismissals

Would the dismissal simply make the business more attractive?

Could it be a genuine redundancy?

Will the buyer walk away/ask for a price cut if the demand is not accepted

Another TUPE issue SNR Denton UK LLP v Kirwan (2012)

The facts Company in administration In-house lawyer made redundant after 5 days SNR instructed to undertake various legal work In-house lawyer argued that TUPE applied

The decision: TUPE doesn’t apply Identity of the ‘client’ has changed ‘Client’ is Administrator, not company in administration

Points to note Check the contractual terms This may not be an end to the matter

Questions?