Vol 6 (2009) - Issue 3

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Casting Doubt on the Protection for Employees under TUPE in an Insolvency Situation: Oakland v Wellswood [2009] All ER (D)

The recent case of Oakland v Wellswood [2009] All ER (D), considered a key issue in relation to the much-debated matter of pre-packaged (‘pre-pack’) administrations, namely, the transfer of employees pursuant to the Transfer of Undertakings (Protection of Employment Regulations 2006) (‘TUPE’) in an insolvency situation.

The continuation of employment and the automatic transfer of employees to the new purchasing entity pursuant to TUPE in a pre-pack sale scenario is often cited as an important advantage of this process. The judge in this case cast doubt on the general applicability of TUPE to such situations. In this case, the judge decided that a pre-pack business sale came within the scope of the exception to the general rule set out in Regulation 8(7) of TUPE as the transferor was in ‘insolvency proceedings … instituted with a view to … liquidation’, effectively disapplying the protection granted to employees afforded by Regulation 4 of TUPE, which is discussed in greater detail below.

Facts

Wellswood Limited (the ‘Company’) traded as a wholesaler in fresh fruit and vegetables supplying catering firms and hotels. The Claimant, Mr. Oakland, was an employee, a co-director and a 50% shareholder of the Company. By mid-2006, after approximately three years of trading, the Company encountered financial difficulties and on 6 December 2006, joint administrators (the ‘Joint Administrators’) were appointed to the Company pursuant to paragraph 22 of the Insolvency Act 1986 (as amended) (the ‘Act’). Prior to the appointment of the Joint Administrators, the Company entered into discussions with a major supplier of the Company, for the sale of the business and assets of the Company. Shortly after the appointment of the Joint Administrators, the business and assets of the Company (including the lease of its premises and certain equipment but not the book debts) were sold to Wellswood (Yorkshire) Limited (‘Newco’), a wholly owned subsidiary of the supplier specifically incorporated for this purpose. Newco also took on a number of the employees of the Company, including the Claimant.

On 27 November 2007, the Claimant was dismissed from Newco and he subsequently brought a claim to the Employment Tribunal against Newco for unfair dismissal (the ‘Claim’). The Claim was dismissed at first instance by the Employment Tribunal on the ground that the Claimant had not satisfied the prerequisite period of continuous employment (one year) for bringing a claim for unfair dismissal. The Claimant was precluded from relying on the protection granted by TUPE preserving continuity of employment because the Company was ‘the subject of … insolvency proceedings … instituted with a view to the liquidation of the assets [of the Company]’ (Regulation 8(7) of TUPE) and thus fell outside the scope of the general protection afforded to employees under the regulations.
The Claimant appealed the decision.

Legal framework

Administration

Paragraph 3(1) of Schedule B1 of the Act, sets out three statutory objectives of an administration:

(a) rescuing the company as a going concern, or

(b) achieving a better result for the creditors as a whole than would be likely on winding up of the company, or

(c) realising any property in order to make a distribution to one or more secured or preferential creditors.

The administrator must consider each of these objectives in turn. In this case, the Joint Administrators stated in their proposals to the creditors of the Company that they considered that the first objective was not achievable given the Company’s financial position and, as such, cited the second objective as the purpose for the administration proceedings. The Joint Administrators went on to add that any further trading in administration would be likely to result in a loss of business and customers and a reduction in the overall funds available for distribution to the creditors.