TUPE, Administration and the Rescue Culture: OTG Limited v Barke & Others and Consolidated Appeals

Abstract

In its recent decision in OTG ([2011] IRLR 272), EAT the Employment Appeal Tribunal (EAT) addressed the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006) to transactions entered into in relation to the business of a company which is in administration pursuant to Schedule B1 of the Insolvency Act 1986 (Schedule B1). In doing so, the EAT revisited the proper interpretation of regulation 8(7) of TUPE 2006 previously considered in Oakland v Wellswood (Yorkshire) Limited by both the EAT ([2009] IRLR 250, EAT) and (albeit only in passing) the Court of Appeal ([2010] IRLR 82, CA). Whether the transfer of undertakings legislation applies in its full rigour to transactions out of administration is of considerable importance not only to the employees affected but also to those devising, structuring and negotiating such transactions. The increased use of pre-pack administration in recent times has brought this issue into particular focus. As the EAT noted in OTG, referring to Annotated Guide to the Insolvency Legislation by L.S. Sealy and D. Milman, in a pre-pack administration, the intended administrator is involved prior to appointment in ‘planning in advance an arrangement under which the business of the company is to be sold immediately after his appointment, bypassing the statutory procedure of the creditors meeting, and without any direction from the court’. Pre-pack administrations have attracted controversy in some quarters, especially given the number of high-profile transactions in recent times where the acquirer has been associated with the previous ownership of the insolvent business. Perceived advantages of pre-packs for those wishing to restructure insolvent businesses include not only the avoidance of debts and contracts but also the potential for acquisition post insolvency of only part of the relevant business. The speed of the pre-pack process also reduces disruption to the ongoing business as well as the cost of the administration itself (since the immediacy of sale avoids the need to fund the trade of the business through the period of the administration). The utility and attractiveness of the pre-packs to those seeking to reposition and restructure an insolvent business would be further enhanced if related transactions were to evade the protections for employees otherwise established by the transfer legislation. That said, it is important to note that, while in OTG the conjoined appeals involved a variety of transactions out of administration, no distinction was drawn by the EAT between pre-packs and other transactions out of administration for the purposes of considering the proper application of TUPE 2006.