Administrators are not company officers, UK Supreme Court rules

James Hillman of Pinsent Masons said: “This decision will be welcomed by insolvency practitioners and rightly distinguishes between the role of a director and an insolvency practitioner. However, it is important for insolvency practitioners to note that this decision only means that they will not personally be subject to criminal sanction if they fail to submit the HR1 form notifying the Redundancy Payments Service (RPS), acting on behalf of the secretary of state for business and trade, that collective redundancies are proposed.”

He added: “Welcome though this ruling is, it does not absolve insolvency practitioners of civil consequences. If an insolvency practitioner is appointed as administrator to an employer and collective redundancies are proposed, it will still be important to seek to ensure that there is compliance with employment-related obligations to the extent possible.”

The central issue in the case was whether an insolvency practitioner appointed as an administrator under the Insolvency Act should be regarded as an ‘officer’ of the company under TULRCA. That Act mandates that employers planning to dismiss at least 20 employees as redundant within 90 days must provide prior notice to the RPS, and failing to do so results in a criminal offence under section 194(1). If the offence is committed with the consent or neglect of certain officers of the company, they may also be held accountable under section 194(3).

In this case, Robert Palmer, who was one of the joint administrators of an investment firm, issued redundancy notices to certain employees without giving the required notice to the secretary of state. Criminal proceedings were subsequently initiated against Palmer, alleging that he had committed an offence under TULRCA. He contended that administrators are not considered ‘officers’ under section 194(3) of TULRCA.

The Northern Derbyshire Magistrates Court held that Palmer was indeed an officer, and the Divisional Court dismissed his judicial review. Palmer then appealed to the Supreme Court, which granted the appeal. The court held that the Insolvency Act did not indicate that administrators should be considered officers of the company. In fact, the court said, certain references within the Act make it clear that administrators are not considered officers.

The court dismissed the respondents’ argument that excluding administrators would leave a “responsibility vacuum” at a company and render any criminal sanction meaningless. The court said that the responsibility for determining whether a person is an officer of a body corporate should be based on whether that person holds an office within the constitutional structure of the body corporate.

The court also rejected the possibility of interpreting the term “other similar officer”, mentioned in TULCRA, in an expansive manner to include administrators under section 194(3) of the Insolvency Act. It said that the language of the section did not support such an interpretation.

Edward Goodwyn of Pinsent Masons said: “Whilst insolvency practitioners may now avoid criminal sanction, they will still need to lodge form HR1 with RPS – copying the form to the appropriate representative – and seek to collectively consult as far as is practicable to meet with the company’s civil liabilities under the TULRCA, failing which the company will be faced with protective award claims in the employment tribunal.”