Employment Article
11 ‘Pre-packed' Points About Pre-pack Administrations
The Pre-pack Administration has been in the news recently with the opposing and controversial decisions in Oakland v Wellswood and latterly Olds v Late Editions.
1. A ‘pre-pack' Administration occurs when there is a pre-arranged sale of the assets of an insolvent company.
2. TUPE normally forces the ‘purchaser' or ‘transferee' to employ those assigned to the business they have acquired, without changing the terms and conditions of employment.
3. TUPE was changed in 2006 to incorporate exemptions to promote a rescue culture and to save jobs.
4. Where a business is subject to a ‘terminal' insolvency (i.e. will be wound up) there is a total exemption from regulations 4 and 7 of TUPE. Liability for the employees does not pass to the transferee.
5. Oakland says that each Administration should be looked at on its facts to see if it falls within this exemption (fact based approach).
6. Olds says that an Administration can never fit within the exemption, and that employees should always have the full protection of TUPE.
7. Old is drafted as the ‘definitive' decision, but in fact both are Employment Appeal Tribunal decisions and so have equal authority. It is thought the Court of Appeal will eventually decide the point.
8. When negotiating a purchase price it is essential to factor in the potential liability to any employees assigned to the part you are acquiring - such as unpaid wages, holiday pay, redundancy payments, notice etc. Consider holding back some of the purchase price or getting indemnities.
9. Give thought to whether you will want to make any dismissals and the potential cost of this, including whether the dismissal can be carried out ‘fairly'.
10. Where possible, comply with the rules about consulting with employees and their elected representatives. Protective awards of up to 13 weeks pay can be made to each employee for a failure to do this.
11. Remember that even if the full exemption does not apply, the government National Insurance Fund may assist by picking up some of the liability to employees, provided this was incurred before your company took over.
Related Article:
EAT unpacks the Pre-pack and Departs from Oakland
For more information on the above or for advice on any other employment issue please contact our employment department on 020 7354 3000 or e-mail employment@colmancoyle.com
Author Profile: Georgina Kyriacou, Partner
Date published: 12th March 2011