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Employment law news – TUPE and Insolvency

12th May 2011

The case (OTG Ltd v Barke and Others) was concerned with the application of Regulation 8(7) in regard to administration proceedings under Schedule B1 of the Insolvency Act 1986. Five appeals were heard by the EAT including four arising from “pre-pack” sales by administrators.

Primarily, the question was whether administration proceedings could constitute bankruptcy proceedings when established for the liquidation of assets of the transferor.

A previous decision on Oakland v Wellswood (Yorkshire) Ltd. was not followed by the hearing and the EAT used an absolute approach in OTG Ltd v Barke and others rather than the fact-based approach as had previously been employed.

Provisions of the Insolvency Act maintain that the primary purpose of a schedule B1 administration is to offer administrators the chance to rescue a company as a going concern and that it can be seen that that when such proceedings are instituted it does not follow that an administrator’s purpose is to liquidate assets.

The decision was reached by the EAT after full consideration of the EC Acquired Rights Directive and relevant employment law decisions of the European Court of Justice (ECJ). ECJ has, in the past, made clear distinction between proceedings for the purpose of continuing the concern in the same hands and proceedings wishing to dispose of the undertaking and/or its assets.

TUPE’s foremost purpose is to protect employees who are subject to a transfer and maintain their employment law rights. A fact-based approach to transfer would mean that those affected would be unsure of where they stand and is likely to cause disputes concerning liability for the transferor’s obligations.

The EAT ruled that TUPE intends that employees should be protected and the Regulations will always apply to the sale of a business by an administrator.

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