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Guidance on Insolvency and Transfer of Undertakings

Lorry22In a case which raised novel issues on the interrelationship between insolvency and transfer of undertakings rules, a haulage company (company A) is facing a rash of Employment Tribunal (ET) proceedings after taking over the workforce of another company (company B) on the next working day after the latter ceased trading.

Company B was in severe financial difficulties and had been issued with a winding up petition by the tax authorities when it closed. Its workforce was transferred to company A on what were said to be less generous terms than previously. It subsequently went into liquidation and was formally dissolved.

With the backing of their trade union, 13 employees launched proceedings against company A on the basis that the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) applied. However, company A argued that the relevant parts of TUPE had no application to the case as company B had been ‘under the supervision’ of insolvency practitioners, within the meaning of Regulation 8(7), at the time that the transfers took place.

Those arguments did not persuade the ET and, in dismissing company A’s appeal, the Employment Appeal Tribunal (EAT) lamented as ‘extremely unfortunate’ the uncertainty that so often prevailed amongst employers, employees and their advisers as to the correct application of TUPE.

The EAT found that the interests of certainty favoured a ‘red line test’ and that company B had not fallen under the supervision of insolvency practitioners until the date of their actual appointment. That had not occurred until about a week after the workforce was shifted to company A and TUPE therefore applied.