Factual and Procedural Background
The appellant is Company A, a firm of solicitors. The respondent is Plaintiff, a solicitor formerly employed as an assistant solicitor by Company B, solicitors, at its office in The City. On 21 July 2008, Company B dismissed Plaintiff and several other employees on grounds of redundancy. On 25 July 2008, on application by the Commissioners for Her Majesty's Revenue and Customs (HMRC), a court order appointed two joint administrators over Company B.
On 28 July 2008, Company B, acting by its joint administrators, entered into a management contract with Company A relating to certain offices. On 17 October 2008, Plaintiff brought claims in the Employment Tribunal against various respondents, including Company A, asserting rights under the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") as a transferee of part of Company B's undertaking.
Employment Judge Freer held that there was a relevant transfer and service provision change under TUPE, and that regulations 4 and 7 of TUPE were not disapplied by regulation 8(7). Company A argued unsuccessfully that Company B was subject to insolvency proceedings instituted with a view to liquidation, thus disapplying those regulations.
Company A appealed to the Employment Appeal Tribunal (EAT), which applied an "absolute" approach holding that administration proceedings cannot constitute insolvency proceedings instituted with a view to liquidation within regulation 8(7). The EAT dismissed Company A's appeal.
Permission was granted for Company A to appeal to the higher court on important points regarding the application of Council Directive 2001/23/EC, implemented by TUPE, specifically whether administration proceedings fall within the scope of regulation 8(7).
Legal Issues Presented
- Whether administration proceedings under Schedule B1 of the Insolvency Act 1986 constitute 'insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor' within the meaning of regulation 8(7) of TUPE.
- Whether the determination of the applicability of regulation 8(7) requires a fact-based inquiry into the purpose of the particular administration or an absolute approach based on the nature of administration proceedings generally.
Arguments of the Parties
Appellant's Arguments
- Administration proceedings can be instituted with a view to liquidation, and thus regulation 8(7) can apply if that is the purpose of the particular administration.
- The question requires a fact-based inquiry into the purpose of the specific administration order, not a general rule.
- The factual finding that the administration was not instituted with a view to liquidation was perversely wrong.
Respondent's Arguments
- The EAT was correct to adopt an "absolute" approach, holding that administration proceedings cannot constitute insolvency proceedings instituted with a view to liquidation within regulation 8(7).
- The focus should be on the purpose of the administration procedure generally, not on the circumstances or expectations surrounding a particular administration.
- The absolute approach promotes legal certainty and aligns with the purpose of the Directive to protect employees.
Intervener's Arguments (Secretary of State)
- Supported the absolute approach adopted by the EAT.
- Emphasized the importance of legal certainty and avoiding complex fact-based inquiries.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Oakland v. Wellswood (Yorkshire) Ltd [2009] IRLR 250 |
Whether administration proceedings are instituted with a view to liquidation is a question of fact for the Employment Tribunal. |
The court discussed and distinguished this decision, noting it adopted a fact-based approach which the EAT later rejected. |
| Secretary of State for Trade and Industry v. Slater and others [2008] ICR 54 |
Explanation of the rationale behind regulation 8 of TUPE, distinguishing between different insolvency scenarios. |
Used to clarify the intended operation of regulation 8 and its exceptions. |
| H.B.M. Abels v. Administrative Board (Case C-135/83) [1985] ECR 469 |
1977 Directive does not apply to transfers during insolvency proceedings instituted with a view to liquidation under judicial supervision. |
Interpreted as excluding insolvent liquidations from TUPE protections; foundational for regulation 8(7). |
| Giuseppe d'Urso and Others v. Ercole Marelli Elettromeccanica Generale SpA (Case C-362/89) [1991] ECR 1-4105 |
Application of the Directive depends on the purpose of the insolvency procedure; special administration allowing continued trading triggers TUPE protections. |
Supported the approach focusing on the purpose of the insolvency procedure. |
| Luigi Spano and Others v. Fiat Geotech SpA (Case C-472/93) [1995] ECR 1-04321 |
Procedure aimed at rescuing the company triggers TUPE protections; no judicial supervision or suspension of payments. |
Emphasized the importance of the nature and purpose of the procedure in applying TUPE. |
| Jules Dethier Equipement SA v. Dassy (Case C-319/94) [1998] ICR 541 |
Directive applies if the company is being wound up by the court but continues to trade; insolvency proceedings excluding TUPE protections differ. |
Distinguished between insolvency and winding-up proceedings for TUPE applicability. |
| Europi ces SA v. Wilfried Sanders and Automotive Industries Holding Company SA (Case C-399/96) [1998] ECR 1-6965 |
Voluntary liquidation not necessarily insolvency; TUPE protections apply if the company is not subject to insolvency proceedings. |
Confirmed that TUPE applies to certain liquidation procedures not amounting to insolvency. |
Court's Reasoning and Analysis
The court began by examining the relevant EU Directives and their domestic implementation in TUPE, focusing on regulation 8(7) which excludes TUPE protections in cases where insolvency proceedings are instituted with a view to liquidation under supervision. The court reviewed the nature and purposes of administration proceedings under Schedule B1 of the Insolvency Act 1986, noting that administration has a statutory hierarchy of objectives: (a) rescuing the company as a going concern; (b) achieving a better result for creditors than liquidation; and (c) realising assets for distribution to secured or preferential creditors.
The court analyzed the facts of the administration order made in respect of Company B, including the evidence presented at the time of the order and subsequent developments. It noted that although the administrators initially hoped for a sale or rescue, the actual outcome was a management contract aimed at realising assets, not rescuing the company.
The court then considered relevant decisions of the Court of Justice of the European Union (CJEU), which have emphasized that the applicability of the Directive depends on the purpose of the insolvency procedure. Cases like Abels exclude insolvency proceedings aimed at liquidation from TUPE protections, while procedures allowing continued trading or rescue efforts attract TUPE protections.
Domestic authorities, including Oakland, had adopted a fact-based approach requiring inquiry into the purpose of the particular administration. However, the EAT rejected this in favor of an "absolute" approach focused on the nature of administration proceedings generally.
The court agreed with the EAT's "absolute" approach, reasoning that regulation 8(7) should be interpreted purposively to provide legal certainty. It held that administration proceedings under Schedule B1 are not, by their nature, instituted with a view to liquidation of assets, even if in practice liquidation may result. The administrator's statutory duty to consider rescue as the primary objective means the administration procedure itself is distinct from liquidation proceedings.
The court found the fact-based approach problematic because it could lead to uncertain and complex inquiries about the subjective expectations at the time of appointment, which may change after the order is made. The purpose of the administration order is the statutory purpose set out in Schedule B1, not the particular expectations or evidence presented at the time.
Holding and Implications
The court dismissed the appeal.
The holding establishes that administration proceedings under Schedule B1 of the Insolvency Act 1986 do not constitute "bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor" for the purposes of regulation 8(7) of TUPE. Consequently, regulations 4 and 7 of TUPE, which protect employees' rights on transfer, continue to apply in cases of administration.
The decision provides legal certainty by adopting an absolute approach focused on the nature of administration proceedings rather than the facts surrounding a particular administration order. It clarifies that the statutory purpose of administration, including the primary objective of rescuing the company, distinguishes it from liquidation proceedings that trigger the disapplication of TUPE protections under regulation 8(7).
No new precedent beyond the interpretation of regulation 8(7) in the context of administration proceedings was set. The direct effect is that transferees in administration cases cannot rely on regulation 8(7) to avoid employee protections under TUPE.