FIGURE OF EIGHT

Secretary of State for Trade and Industry v Slater and ors

Regulation 8 of the Transfer of Undertakings (Protection of Employee) Regulations 2006 (TUPE) states that certain liabilities do not transfer if a company is subject to insolvency proceedings. In Secretary of State for Trade and Industry v Slater and ors (2007, IRLR 928; IDS 834), the Employment Appeal Tribunal (EAT) said that tribunals have to be very careful in deciding when insolvency proceedings started.

Basic facts

Mr Slater worked for CFG Site Services Ltd until the company went into insolvency on 25 July 2006. The company appointed a firm of accountants, Deloittes, that day to prepare for a creditors’ voluntary winding up meeting. The following day all the staff were given notice of redundancy by Mr Ramsbottom, who worked for Deloittes.

CFG Nationwide Site Services Ltd (CFGNSS) then bought the business on 27 July and re-employed Mr Slater. The company went into formal liquidation on 16 August at a meeting of shareholders following a resolution to wind up the company. It also appointed two liquidators – Mr Ramsbottom and Mr Wong.

Mr Slater claimed that, following the transfer, his new employer owed him back pay. CFGNSS argued that it had not acquired any liabilities because, at the time of the transfer, insolvency proceedings had already started. He was therefore exempt under regulation 8.

Relevant law

Regulation 8(1) states that “if at the time of a relevant transfer the transferor is subject to relevant insolvency proceedings”, then paragraphs (2) to (6) apply.

Regulation 8(6) of TUPE 2006 defines “relevant insolvency proceedings” as “insolvency proceedings which have been opened in relation to the transferor not with a view to the liquidation of the assets of the transferor and which are under the supervision of an insolvency practitioner”. If this section applies, then there is no transfer of liability for debts such as holiday pay in respect of sums guaranteed by the statutory protection schemes, and the Secretary of State has to cough up out of the National Insurance Fund.

Regulation 8(7) disapplies regulations 4 and 7 (giving certain employment rights to employees) “where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner.”

Tribunal decision

The tribunal decided that, as the insolvency proceedings started on 25 July (two days before the transfer), that meant that “at the time of” the transfer, CFG Site Services Ltd was subject to insolvency proceedings. As such, no liability passed to CFGNSS.

The Secretary of State challenged both findings, arguing that, although there were "insolvency proceedings" within the meaning of either regulation 8(6) or (7), they were not live "at the time of a relevant transfer" within the meaning of regulation 8(1).

EAT decision

And the EAT agreed. It said that the liquidation of CFG Site Services started as a consequence of the creditors' voluntary liquidation. That started either as a result of the resolution of the members or the creditors' meeting, but in any event did not occur until after the transfer.

On top of that, the EAT pointed out that the company could not show that the proceedings were under the supervision of an insolvency practitioner (a requirement of both regulations 8(6) and (7)). Mr Ramsbottom could not be described as an insolvency practitioner until he had been appointed liquidator on 16 August.

It followed that there were no insolvency proceedings in place when the business was transferred, and that even if there were, they were not under the supervision of an insolvency practitioner. The Secretary of State was not, therefore, liable for the debt.

The concept of when insolvency proceedings begin has to be the same under TUPE as it is in the legislation defining the relevant statutory proceedings. There is no basis in law for fixing a different starting point for TUPE purposes than for any other purposes. There would otherwise be considerable uncertainty as to when the proceedings began.