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EAT does not follow the decision in Oakland v Wellswood

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On 16 February 2011 the Employment Appeal Tribunal (EAT) gave its Judgment in the case of OTG Ltd v Barke and others. The EAT had before it five appeals which were all listed together as they all raised the same point which was - whether administration under Schedule B1 constitutes or may have constituted “insolvency proceedings instituted with a view to the liquidation of the assets of the transferor” within the meaning of reg. 8(7) of TUPE. Four of the five cases involved pre-pack sales out of administration.

The EAT commented on the practical importance of the decision and acknowledged that if the employee liabilities remained with the insolvent transferor then the employees would simply be unsecured creditors (subject to any claim that they have to the National Insurance Fund), but if the employee liabilities were transferred to the solvent transferee the employee would have an enforceable claim.

The EAT said that it was asked to consider whether a fact based approach or an absolute approach is correct i.e. should the purpose of each administration be considered on an individual basis and then a decision made as to whether reg 8.(7) TUPE applies or was it correct that a blanket approach be taken such that reg 8(7) TUPE shall not apply to any sale of a company’s assets and/or business in administration.

In summary it was decided that administration was not “insolvency proceedings instituted with a view to the liquidation of the assets of the transferor” within the meaning of reg. 8(7) of TUPE. The effect of the decision is that it appears that TUPE will operate to automatically transfer employees from the insolvent company to the purchaser. No doubt purchasers will now take the potential employee liabilities that will transfer to them into consideration when negotiating the price they are prepared to pay for the business and/or assets of the insolvent company.

This case may be subject to a further appeal.

If you have any questions about these or any other issues please do not hesitate to contact a member of our Insolvency and Business Recovery Team.

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