TUPE Applies to Sales by Administrators

2 mins

Posted on 05 Jan 2012

Where an administrator is selling a business, TUPE will apply and the employees will transfer to the buyer. Administrations are not proceedings which have been instituted with a view to the liquidation of the assets and are not therefore exempt from the application of TUPE. 

In Key2law (Surrey) LLP v De’Anitquis the Supreme Court had to resolve a conflict between two decisions at EAT level considering whether sales of businesses by administrators are exempt from TUPE. 

TUPE 2006 categorises insolvency proceedings into what can be described as 'terminal' and 'non-terminal' proceedings. Terminal proceedings are those involving the liquidation of the assets, where the business will not be saved. In such cases TUPE does not apply and employment contracts do not transfer on a sale of the assets. ‘Non-terminal’ proceedings are those where the primary aim is the rescue of the business. In such cases, employees will transfer but there is greater scope to vary their terms and conditions of employment and certain pre-transfer debts do not transfer.

The EAT in Oakland v Wellswood (Yorkshire) Ltd held that an administration fell into the ‘terminal category’. It looked at the objective intended to be achieved by the appointment of the administrator and held that, on the facts, this was the liquidation of the assets and so TUPE did not apply. The EAT in OTG v Barke disagreed with this ‘fact-based approach’ and said that all administrations should be regarded as ‘non-terminal’ and so covered by TUPE. 

The Supreme Court rejected the ‘fact-based approach’ and adopted instead an ‘absolute approach’ under which all sales by administrators are covered by TUPE if they amount to a relevant transfer under TUPE. It said that it would be unsatisfactory if the application of TUPE depended on the evidence leading to the administrator’s appointment and the objective intended to be achieved. Adopting the 'absolute approach' would mean that all involved would know where they stand.

This is a sensible decision and not altogether surprising. The 2007 government guidance suggests that all administrations fall within the 'non-terminal' category as their primary purpose is to rescue the business, even if in practice this is not possible. The Oakland decision came as a surprise to many and the certainty provided by the Court of Appeal in the Key2law (Surrey) LLP case is welcome.

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