The UK economy has faced many challenges in recent years but there is hope that it has returned to positive growth and that a further recession will be avoided. However, the scale of the climb out of recession means that some businesses are struggling to survive after too many years of losses. Recent examples include Past Times, La Senza, Blacks Leisure and even Rangers Football Club.
When a company is facing financial difficulties, it can be placed into administration and be managed by an administrator. The administrator’s objective is to rescue the company as a going concern or achieve a better result for the creditors than would be likely if the company was wound up or liquidated. This is often achieved by selling the company. Alternatively, if it is not possible to save a business, it can be wound up and put into liquidation and then it may be sold.
But what happens to the employees of the company in these situations and what do employers need to be aware of?
A sale of a business is governed by The Transfer of Undertakings (Protection of Employees) Regulations 2006 (TUPE). The general purpose of TUPE is to safeguard employees’ jobs and rights when the business in which they work changes hands.
The main provisions of TUPE in insolvency situations are that where terminal insolvency proceedings have been instigated against a company with a view to its liquidation, then employees will not be inherited by the purchasing company and the dismissal of employees by reason of the transfer will not be automatically unfair. The employees are therefore likely to be made redundant.
However, where non-terminal proceedings have been instigated (that is, not with a view to the liquidation of the company), then the employees will transfer to the purchasing company and will benefit from protection against dismissal. This means that the employees will be inherited by the purchasing company, their jobs will be safeguarded and any dismissal because of the transfer, or connected with the transfer, will be automatically unfair.
Whether you may be an employer or an employee in a business in financial problems specialist advice should be sought. For example, it can be tempting for companies to sell part of their business as a form of restructuring without understanding the implications of TUPE. Further, any employees who lose their position in these circumstances should take advice to check whether they have been treated fairly or may have a claim.
Liz Pollock is a solicitor in Raworths’ Employment unit. To contact Raworths telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate, HG1 1HF. Alternatively, you can email firstname.lastname@example.org