TUPE decision to reduce numbers of Pre-Pack Administrations?

TUPE will now apply to Prepack Administrations. This change is good news for employees but bad news for purchasers, Administrators and creditors of insolvent companies and could lead to an increase in liquidations.
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* Insolvency
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* Oakland

* Accounting
* Business
* Human resources

* Manchester - Lancashire - UK

Feb. 24, 2011 - PRLog -- The Court of Appeal finally delivered on 16 February a verdict on the subject of whether TUPE applies in Prepack Administrations after a number of employment tribunal cases suggested it didn’t, and the decision may serve as a blow to purchasers in Pre-Pack situations.

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’s perspective Kevin Lucas from the Manchester office of BCR commented “Although by their nature entrepreneurs (purchasers of businesses) are risk takers, this ruling could pose an obstacle in selling a business as any purchaser will now be more nervous about their position.  When they factor the cost and impact of dealing with potential TUPE liabilities into their offer, sales prices are likely to be depressed and some deals may not take place at all”

“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.
Source:BCR - Barringtons Corporate Recovery
Email:***@bcr-insolvency.co.uk Email Verified
Zip:M5 3EB
Tags:Tupe, Insolvency, Administration, Oakland
Industry:Accounting, Business, Human resources
Location:Manchester - Lancashire - United Kingdom
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