The document discusses various employment law issues that arise in the context of company administrations. It provides information on: 1) The role of an administrator is to manage the company's affairs on behalf of creditors with the objective of rescuing the company or achieving a better outcome for creditors than liquidation. 2) Administrators must decide whether to adopt existing employment contracts within 14 days of appointment. Adopted contracts receive priority for unpaid wages, pension contributions etc. Redundancy rules still apply in administration. 3) TUPE regulations around business transfers can apply in some insolvency contexts. Dismissals to facilitate a sale may be automatically unfair. Informational and consultation obligations remain.

1. Administration and
employment law
James Willis
Head of Employment
stevensdrake solicitors

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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…

8. 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

9. Spaceright v Baillavoine
The 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

10. 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)

11. 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!)

12. 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

13. 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?

14. Bankruptcy proceedings etc…
 Main TUPE provisions don’t apply
 But the obligations to inform and consult
still do
 A rather odd picture emerges

15. ‘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?

16. 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

17. 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

18. 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

19. Questions?