The Supreme Court has held in R (on the application of Palmer) v Northern Derbyshire Magistrates’ Court and anor that as administrators of a company cannot also be “officers”, they are not liable for the offence of failing to notify the Secretary of State of proposed collective redundancies under section 194(3) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).
Basic facts
On 13 January 2015, Mr Palmer was appointed as one of three administrators of West Coast Capital (USC) Ltd. The next day, the employees were handed a letter, signed by Mr Palmer, stating that they were at risk of redundancy and giving notice of USC’s intention to consult with them at a staff meeting that day. Shortly afterwards they were given letters of dismissal, effective immediately, which had also been signed by Mr Palmer. He then gave notice of the redundancies via email to the Secretary of State three weeks later 4 February.
In July 2015, criminal proceedings were commenced against Mr Palmer, alleging that he had failed to give the correct notice under section 193 of TULRCA and was therefore liable to a fine under section 194(1).
Mr Palmer argued that he had not committed an offence because as an administrator appointed under Part II of the Insolvency Act 1986, he was not an “officer” under section 194(3) TULRCA. Otherwise, he pointed out that administrators would be faced with the dilemma of either acting swiftly in the interests of achieving the statutory purposes of administration or complying with the notice requirements under sections 193 and 194.
Relevant law
Section 193(2) states that if an employer proposes to dismiss 20 or more employees at one establishment as redundant within a period of 90 days, they must give notice to the Secretary of State at least 30 days before the first of those dismissals takes effect.
Section 194(1) states that an employer who fails to give the correct notice commits a criminal offence and is liable to a fine. Section 194(3) states that where an offence is committed then liability extends to “any director, manager, secretary or other similar officer of the body corporate” if they negligently fail to prevent it.
Decisions of lower courts
Both the Northern Derbyshire Magistrates’ Court and the Divisional Court disagreed with Mr Palmer. Adopting a “functional” approach, the Divisional Court held that, if administrators were not caught by section 194(3), it would leave a “vacuum in responsibility”. It concluded, therefore, that “Parliament must have intended that … anyone with responsibility for the day-to-day management and control of the corporate entity should be capable of being fixed with personal liability for the employer’s failure to give the statutory notices which they had brought about.”
Mr Palmer appealed to the Supreme Court.
Supreme Court decision
As the term “officer” was not defined anywhere, nor was there any other authority as to how officer should be interpreted, the Supreme Court turned to the provisions of the Insolvency Act since that governed the process of administration and the position of an administrator. Despite many references to the term, the Court was satisfied that it was not the intention nor the effect of the legislation to classify administrators as “officers” of a company in administration.
The Court also considered that the case law relied on by the Divisional Court to find that administrators were officers had been wrongly decided because they had failed to consider the clear distinction in the IA 1986 between administrators and liquidators on the one hand and officers of the company on the other.
Although the Divisional Court was concerned that this would leave a “vacuum in responsibility”, the Supreme Court held that this approach could not be justified by the language of the statute. In particular the Court applied conventional principles to statutory interpretation. Finding that there was no hint in the statutory language that an expansive interpretation should be adopted, it concluded that an administrator was not an “officer” within the meaning of section 194(3) TULRCA.
It therefore allowed the appeal.
Comment
Although the Court held that an administrator is not liable for a failure to notify the Secretary of State of collective redundancies under section 193 TULRCA, the company remains liable for any breach under section 194. In this case it was not disputed that the sole director who was also a party to the proceedings was liable.