Designed to protect employees when a company changes hands, the Transfer of Undertakings (Protection of Employment) Regulations 2006 are still relevant when a company is sold via pre pack administration as opposed to a traditional sale.

However, certain points of difference occur which this article will attempt to qualify.

Since ‘Terminal’ Insolvency Procedures are not Relevant to TUPE, does Administration Qualify?

When a company goes into liquidation, this is what’s known as a ‘terminal insolvency’ and hence TUPE does not apply. Until 2012, there was some dispute as to whether the prepack administration should be considered ‘terminal’ but this was qualified in 2012 by the Court of Appeal. This ruling stipulated that since the primary goal of an administration is to rescue the company, TUPE – which disapplies the automatic transfer of employees to liquidation proceedings – would not apply. In short, the administration does not qualify as a terminal insolvency procedure so TUPE retains its efficacy.

Where does the Money for Employee Wages come from During the Period Before a Pre-Pack sale is Agreed?

Where staff have not been paid wages in the period leading up to a pre pack administration, the law permits money to be drawn from the National Insurance fund under certain carefully specified limits: this can include:

(1)  Up to eight weeks’ wages

(2)  A maximum of six weeks’ holiday pay

(3)  A statutory notice pay in the case where an employee has worked their notice period without recompense

(4)  Unpaid workplace pension contributions

Where claims fall above these statutory limits, the liability then passes to the purchasing company.

What about Maternity, Paternity, Adoption, or sick pay in Cases of Administration?

These would be claimed back from the Department of Work and Pensions, and HMRC, rather than the National Insurance fund.

How much can Employment Contracts be Varied after a Pre-Pack Administration?

Since the key goal of an administration is to rescue a business, certain variations of employment contracts are permitted assuming it is in the interests of maximising the business’ survival rate. Any amendments must be signed off on by the employees or their union representatives and, once the sale of the business has gone through, followed up on by updated written terms and conditions of employment.

Employee Communication During a Pre-Pack

TUPE specifies the obligation for companies to communicate clearly with employee representatives or, in the case of companies with 10 employees or less, the employees themselves directly. Employers must also be informed as to:

  •         The timeframe of the pre-pack
  •         The reasons behind the administration
  •         Any potential effects likely to be suffered by employees
  •         Some assessment of whether the company is likely to be restructured

Employee Dismissal at the time of a Pre-Pack Administration

The law specifies that unless the reason is ‘economic, technical or organisational,’ (ET0), no employee can be dismissed at the time of a business’s sale. Employers should therefore take care with regards to any human resources changes during the business transfer.

Anything else you’d like to know?

If you are considering a Creditors’ Voluntary Liquidation but are unsure of the impact on your employees, please call our team on 08000 746 757 or use the live chat function below.