It was decided that TUPE will apply in a Pre-Pack Administration just as it applies in a normal Administration meaning that phoenix companies will inherit liabilities, risks and potential claims that they can leave behind in a liquidation scenario. Up until 16 Feb it was held that TUPE did not apply meaning that purchasers in pre-pack situations bought a business risk free from an employee perspective.
This ruling could serve as a blow to the now common practice of Pre-Pack Administrations for buyers, Administrators and creditors of the insolvent company, but could be great news for employees. Only a few days ago it came to light 2 claims had been made by former Halliwells employees against HBJ Gateley Waring.
Buyers will need to conduct more due diligence into the dealings with previous employees, or face the increased risk that they could inherit a number of liabilities, some of which could be substantial. Under previous guidance published by the DBIS (formerly DTI) a number of liabilities may be picked up by the National Insurance Fund subject to a £400 per week cap, but awards such as Compensatory ones for unfair dismissal claims (currently standing at £68,400 per employee) will pass to the purchaser.
Speaking from the Administrator’
“I don’t think this ruling on its own will reduce the numbers of Pre-Packs taking place, but for both secured and unsecured creditors the inevitable reduction in sales price will reduce the dividends they receive”. Kevin also raised concern for earlier Pre-Packs “I would be concerned for anyone who has previously undertaken a Pre-Pack where there were ongoing employee issues as this ruling may now see phoenix companies with unplanned and insurmountable liabilities to pay”.
The decision is subject to another appeal being made in the future, but it is unlikely any appeal will overturn the current ruling given it is consistent with the guidance issued by DBIS.
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BCR are highly regarded and very knowledgable Licensed Insolvency Practitioners working with Limited Companies, LLP's, Partnerships and Sole Traders to mitigate and resolve the effects of Insolvency with specialist insolvency and recovery solutions. Kevin Lucas and Phil Wood are Chartered Accountants and Licensed Insolvency Practitioners and have between them over 45 years experience.