Buying a Business from an Administrator - do the staff come too?
The Issue
Purchasers of business assets from an Administrator must ascertain if employees assigned to that business are also transferred by TUPE.
Challenges arise through differing wording used in insolvency law and in TUPE.
For insolvency purposes, all Administrations must be begun first to save and sell the business or secondly to get a better recovery for creditors than in a liquidation.
However under TUPE if:
- there is a sale as a going concern, TUPE provides that employees engaged in the business will transfer automatically with that business but a purchaser has flexibility to alter some contract terms; but if
- there is a liquidation of assets, TUPE does not operate to transfer the employees’ contracts and the purchaser of those assets takes them free of obligations to the workforce.
A recent Employment Appeal Tribunal case has disapproved existing government guidance and stated that the Employment Tribunal is to decide in each case the principal reason for an Administration.
The Consequences
Buyers who purchase a business as a going concern from an Administrator whose primary purpose on appointment is such a sale have clarity that the workforce will also transfer.
Others who acquire assets from Administrators must ascertain the principal reason for the Administration is asset liquidation or they will also acquire the asset assigned workforce although with the ability to alter some terms.
If the principal purpose of an Administration is asset liquidation, where a workforce may be needed after purchase of the assets, the purchaser can select members of the workforce and offer its own terms after the acquisition.
A buyer’s failure to engage a transferred workforce will bring the buyer both unfair dismissal liability and financial penalties for default in information and consultation obligations without any contribution to that risk from the selling Administrators by reason of the insolvency.
The Solution
Due diligence as to an Administrator’s primary purpose at appointment is key for a buyer of assets from that Administrator so that either, where a workforce is assigned to those assets, unexpected liability is not incurred or, if the purpose of the asset purchase is talent acquisition but there is no transfer by TUPE, the workforce can be secured by contract direct with the buyer.
Since accrued workforce rights can devalue assets where the employees are not a key element of value and freedom from workforce costs can be critical to the financial viability of the purchase, both ascertaining an Administrator’s primary purpose to be liquidation of assets and obtaining clear evidence of that purpose will be crucial.
Information in this e-alert is a guide only. We recommend that you seek professional advice before taking or refraining from any action. No liability accepted by the firm for any action taken or not taken as a result of this publication.