The Transfer of Undertaking (Protection of Employment) Regulations 2006 (“TUPE 2006”) are designed to protect employees where a business (or part of it) is being sold or otherwise transferred to another business.
Regulations 4 and 7 of TUPE 2006 have the effect that employees assigned to the business “undertaking” being transferred are automatically transferred to become employees of the business acquiring this undertaking.
Regulation 8(7) of TUPE 2006, however, provides an exception to this in the case of insolvent businesses. It provides that “where…the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to liquidation of the assets of the “transferor”, Regulations 4 and 7 will not apply.
Accordingly, a Liquidator appointed to an insolvent company can sell all or part of the company business to a purchaser without the purchaser having as a matter of law to take on employees properly assigned to the insolvent business transferring to it.
Until very recently, it appeared that Regulation 8(7) might well also apply to sales by businesses in administration.
Previously, in Oakland v. Wellswood (Yorkshire) Limited, the Employment Appeal Tribunal held that Regulation 8(7) could apply to transfers of all or part of a business in administration, and that it depended on whether or not the Administrator was appointed with the intention in fact of simply liquidating the assets of the company.
This Judgment was controversial and created confusion. Now, however, the EAT have reversed this decision in the recent case of OTG Limited v. Barke & Others.
In this case the EAT decided that Regulation 8(7) of TUPE 2006 can never apply to a transfer of a business in administration. As a result, a purchaser acquiring a business in administration (or part of it) will be required to take on the employees assigned to that business undertaking transferring to them.
It should be noted, however, that even when Regulation 8(7) operates (that is, in liquidation) and employees do not automatically transfer to the purchaser, the business transfer should still technically be covered by the remainder of the Regulations in TUPE 2006 not excluded by Regulation 8(7). As a result, the seller and purchaser will still be under their respective obligations to inform and consult with the representatives of all employees affected by the business transfer taking place.