The Court of Appeal has recently delivered an important decision which clarifies the circumstances in which the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") will apply where the assets of a company
in administration are sold to another company.
The purpose of TUPE is to protect the employment of those employees assigned to an undertaking (the whole or part of a business), which transfers to a new employer.
There are specific provisions which provide that an employee’s rights may be modified or disapplied under TUPE, when the business or the undertaking involved is insolvent. The extent to which TUPE applies in this situation depends
on the nature of the insolvency. There was previously conflicting caselaw in respect of whether administrations were subject to the insolvency exemption and generally the decisions were fact-based.
In this case, the Court of Appeal decided that a company in administration was not exempted from the protections of TUPE. When making an administration order, there are a range of potential outcomes open to an administrator, including
attempting to rescue the company and the Court of Appeal considered that it could not be said that the appointment is made ‘with a view to the liquidation of the assets’. As a result it was held that the automatic transfer principle under TUPE will apply to
Alison Loveday of Berg commented: "Although, this case provides clarity in what had been an uncertain area of the law, it will not be welcomed by employers and insolvency practitioners given that the outcome shifts the balance
in favour of employees. It effectively means that companies undergoing a ‘pre-pack’ sale as a result of entering administration will not be exempt from TUPE. As such, employees of a business that goes into a pre-pack administration will automatically transfer
to the new employer and will benefit from the protection of the automatically unfair dismissal provisions. The number of ‘pre-pack’ transactions may well now fall as a result of these increased potential liabilities, which will not help facilitate the rescue
culture that was developing in this area and which is much needed in the current economic climate.
However, it is noteworthy that this case was decided around the same time that the Government launched a ‘call for evidence’ on the effectiveness of TUPE protecting employees’ rights and "smoothing" the process of business restructuring.
Should the balance of evidence call for possible changes to the current regulations, there will be a formal consultation on any proposed changes in 2012.
To discuss how we can provide further advice in connection with these issues, please contact Alison Loveday, Managing Partner and Head of Berg Employment, by email to
firstname.lastname@example.org or alternatively you can call Alison on 0161 833 9211.
Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of the contents of this article.