Does TUPE apply in an insolvency situation? Does it make any difference if it is a liquidation or an administration? What does HR need to know? The answer to those questions shortly but the reason why this is currently doing the rounds is because of the news last week of the collapse of retail giants Arcadia and Debenhams. The BBC reported how the combined effect was putting around 25,000 jobs at risk. Arcadia entered administration on 30 November, meaning the administrators will try to help the company repay its debts in order to escape insolvency, if possible. It was worse news for Debenhams which went into liquidation, which, if as buyer is not found, means its assets will be sold and the company will be dissolved completely. The great hope in both cases is that a buyer will be found – last week Mike Ashley's Frasers Group was in talks over buying Debenhams – but the key point is that buying a business from an insolvent company involves very different rules, depending on the type of insolvency it is and, even if TUPE does apply, the way it operates is modified with limits placed on what the buyer takes over, modifications designed to attract the likes of Mike Ashley. As you would expect, we advise both buyers and seller in these situations and, of course, HR has a key role to play. So what does HR need to do exactly, and what do they need to know about TUPE? They are questions I put to Ed Goodwyn who joined me by video-link:
Ed Goodwyn: “Unfortunately, it's a fact of life these days with the current market that the risk of insolvency is ever increasing and HR professionals need to be alive to the steps they ought to be taking, and thinking about taking, now to be prepared if they face that very unfortunate circumstance. The first thing to note, of course, is that hopefully, if there is insolvency proceedings, there is a sale in prospect whereby some of the business or all of the business with the employees may transfer and will be sold to another business. From a practical perspective, the HR professional needs to be alive to the speed by which these transactions take place - they can take place in a matter of days. Very often, if it's an administration, the administrator, even before appointment, will be involved within the business to see to what extent it can help get the business away quickly. So it's very important for HR to understand the nature of the speed of these things, and be ready and prepared. So simple steps like making sure the HR records are all in good shape so quick and swift due diligence can be provided to any future purchaser and, in particular, looking to see to what extent there are any enhanced, or arguable enhanced, redundancy rights which will be probably front and foremost to a new employer or buyer's perspective. Another thing for HR to consider, of course, is the issue as to whether TUPE is going to apply or not. So TUPE may apply either almost in full or not at all, and it rather depends on the nature of the insolvency proceedings themselves. The first thing to say though, of course, is that the sale, if there has to be a sale, has to meet the ordinary tests under TUPE as to whether TUPE applies at all. If TUPE does apply, then one has to look to see whether it's an insolvency act by way of administration or insolvency proceedings by way of liquidation. If it's a liquidation, then most of TUPE will not apply, i.e. the employees will not TUPE transfer to the buyer. The reason for this rule under TUPE is to make these sorts of sales more attractive and therefore the employment liabilities stay with the company and don't transfer. However, the HR professional needs to understand that even though that element of TUPE does not apply, there is still an obligation to inform and consult. If the insolvency proceedings are an administration, and TUPE does apply, then most of the normal rules of TUPE will apply in the normal way. There are, however, two important exceptions. Firstly, pre-transfer liabilities and the liability for that won't transfer and will be covered by the government and the National Insurance Fund up to certain limits. Secondly, the buyer will be less constrained as to how it will be able to make changes to terms conditions of employment post transfer.”
In case you missed it, last month Ed also advised on an issue that can arise when making pay cuts – specifically the PAYE trap employers can fall into when they fail to get contract variations agreed with employees before making the cut. You can find that article on the Outlaw website.