Jamie McCracken considers the application of TUPE in a pre-pack Administration: When did the Transfer Begin? – A Case Note
In Mr PM Rogers and Mrs K Rogers v Project Viva Ltd (In Administration) and others: 1300027/2016; the Employment Tribunal was faced with an argument from Mr & Mrs Rogers as regards the effect of TUPE regulations upon the purchaser of a business following a pre-pack Administration, in essence they were suggesting that the pre-pack was simply a ruse to avoid responsibility for their claims.
Mr Rogers and his wife were both employed by Project Viva Ltd (In Administration), he as the managing director and she as an administrator. Mrs Rogers was also a 33.3% shareholder and Mr Rogers was responsible for the day to day running of the business. The business produced a number of motoring related magazines. Over several years the business was failing to make the predicted revenue figures it was being supported by a business angel investor who hoped the business fortunes could be turned around.
In July 2016 after a period of discussions about restructuring of the business operations and where the possibility of insolvency was a live issue Mr and Mrs Rogers were made redundant by Project Viva Ltd. They brought claims of unfair dismissal against the employer and the Secretary of State which were ultimately successful in the Tribunal.
However, the more interesting claim that they brought related to the events in early 2017 when faced with their claims in the Employment Tribunal, Project Viva Ltd entered into a pre-pack administration, the assets and business of Project Viva Ltd were then purchased by a company Pixelwest Ltd, a company effectively owned by the remaining shareholders of Project Viva Ltd. The business and staff of Project Viva Ltd all transferred to Pixelwest Ltd upon the purchase of the assets and business in February 2017 however, Mr and Mrs Rogers asserted that this transfer had begun in July 2016 following the breakdown of discussion about the business restructure therefore they were entitled to the protection of the TUPE regulations and thereby were automatically dismissed unfairly for a reason related to the Transfer. They were then successful in having Pixelwest Ltd joined to the proceedings and argued that they should be responsible for any unfair dismissal award.
In general terms Regulation 4 and Regulation 7 together have the effect that an individual who is assigned to a transferred business is transferred to the recipient employer and that rights acquired by that employee including any liabilities towards the employee can transfer, furthermore that dismissing the employee because of the transfer is automatically unfair.
However, Regulation 8(7) sets out that:
''Regulations 4 [transfer of employment contracts and liabilities] and 7 [control of dismissals of employees because of relevant transfer] 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 are under the supervision of an insolvency practitioner.''
Accordingly, it is often thought that scenarios where an insolvency practitioner is involved are immune from TUPE.
The difficulty in any particular scenario is whether or not a particular scenario is “with a view to the liquidation of the assets”. Regulation 8(7) clearly intends that transfers following terminal insolvencies are to be excluded from TUPE (or at least regs 4 and 7) but is not specific about the precise kinds of insolvency procedures within the scope of TUPE and those outside.
However, the Court of Appeal in Key2Law (Surrey) LLP v De'Antiquis  EWCA Civ 1567,  IRLR 212 concluded that it was inappropriate to examine the question of the purpose of a pre pack Administration within the confines of each case; but rather the Tribunal should focus on the general purpose of Administration. It concluded that the general purpose of Administration could not be said to be a terminal insolvency proposition as on many occasions the purpose is to rescue a business; therefore 8(7) can never apply to purchases from administrators and therefore TUPE will always apply in such circumstances.
Accordingly, the Tribunal was required to consider if there had been the commencement of a Transfer in July 2016 by reference to the principles Astley v Celtec Ltd  IRLR 629, where it was held that a transfer can take place over a period of years. Alternately, had there been a series of transfers and in reality could it be said that the dismissal was related to that transfer.
In evidence Pixelwest Ltd advanced evidence which was accepted by the Tribunal, making it clear that there had been a genuine attempt to operate the business between July 2016 and February 2017. Evidence was also advanced, which again was accepted by the Tribunal, that supported the assertion that the relationship between investors and the Rogers had broken down to the point where they could not have continued in employment and would not have been employed immediately before the Transfer in any event.
The Tribunal dismissed the entirety of the claims against Pixelwest Ltd holding that the genuine attempt to run the business following the failed business re-organisation in July 2016 was a clear indication that the transfer effected in February 2017 had not commenced earlier. Furthermore, that Messrs Rogers would not have remained in the business for reasons wholly unconnected to the transfer.
Whilst Pixelwest Ltd ultimately avoided any liability in this case the Tribunal hearing lasted 7 days following a prolonged legal process. This serves as a salient reminder that unexpected arguments may arise in insolvency linked situations and the use of a pre-pack administration leaves the door open to an employment claim reliant upon the TUPE regulations against the party acquiring the assets and business. It would be prudent to explore the possibility of any such novel claims from any employee, but particularly a key or high profile employee, who has left the business in the months prior to a pre-pack as part of the due diligence process of the purchaser.
Jamie McCracken advised and successfully represented Pixelwest Ltd and its Directors throughout this case.