TUPE and special insolvency provisions

Employment Lawyers love TUPE, it’s our chance to look clever. But the nuances of the rules mean that cases are often hard to predict and there are many traps for the unwary. In Ward Brothers (Malton) Ltd v Middleton & Ors UKEAT/0249/13/RN, the Employment Appeal Tribunal had to consider the effect of the special insolvency provisions in TUPE.

Reg 8 (7) of TUPE states that Regulations 4 and 7 of TUPE do not apply to any relevant transfer where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and which are under the supervision of an insolvency practitioner. This means that where rule 8(7) applies employees do not automatically transfer to a new employer on the sale or transfer of the insolvent business. It also means that a new employer can choose to offer employment to the employees on different terms and they do not incur a liability for any pre transfer dismissal, that might otherwise be considered unfair.

In Ward Brothers (Malton) Ltd, Haulage company ‘B’ was in severe financial difficulty. HMCR had issued a winding-up petition. B ceased to trade on a Friday; on the following Monday, Ward Brothers started to perform B's major contracts, using B's ex-employees, save for some who did not wish to accept the worse employment terms as offered. Before B closed, a firm of insolvency practitioners were at B's premises at B's invitation.

The Tribunal found that there had been a transfer of undertakings from B to Ward Brothers unless B was under the supervision of an insolvency practitioner within Reg. 8(7) of TUPE 2006,

Unfortunately for Ward Brothers, the Tribunal found that since the insolvency practitioner was only there in an advisory capacity and had no formal or informal appointment, Reg 8(7) did not apply and therefore the employees of B, TUPE transferred to Ward Brothers. The upshot of this was that the employees who had refused to accept the lower terms offered by Ward Brothers were able to pursue claims for failing to inform and consult and unfair dismissal against Ward Brothers (Company B having since being dissolved). To put this in perspective, a failure to inform and consult carries an award of 13 weeks gross pay (uncapped) per employee, that’s 25% of the annual pay roll.

For more practical guidance on insolvency and TUPE transfers see: 'Insolvency and Transfers' in our practical guidance product Lexis PSL R&I

Sarah Rushton - Moon Beever


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