TUPE and the Insolvent Business

The revised Transfer of Undertaking (Protection of Employment) Regulations came into force. On 6 April 2006.  These Regulations provide employment rights to employees when their employer changes as a result of a transfer of an undertaking. They implement the European Community Acquired Rights Directive (77/187/EEC, as amended by Directive 98/50 EC and consolidation in 2001/23/EC).

The effect of the Regulations is to preserve the continuity of employment and terms and conditions of those employees who are transferred to a new employer when a relevant transfer takes place. Consequently, the new employer takes over all rights and obligations arising from that contract of employment, but what if the transferor is insolvent and can't pay pre-existing debts to his employees? is the new employer obliged to pay these debts as well?

TUPE 2006 contains provisions which apply where the transferor is subject to the insolvency proceedings.  The aim is to help the sale of ailing businesses but any transfers have to occur after an Insolvency Practitioner is appointed.

The Regulations allow that some of the transferor's pre-existing debts to the employees do not pass on to the new employer. Those debts are obligations to pay the statutory redundancy or other debts, such as arrears of pay, payment in lieu of notice, holiday pay or a basic award of compensation for unfair dismissal. In effect, payment of statutory redundancy pay and the other debts will be met by the Secretary of State through the National Insurance Fund. However, any debts over and above those that can be met that way will pass across to the new employer.

However, if the Transfer takes place before insolvency, then the New Employer is subject to the TUPE Regulations in full.

For more information and initial advice please contact us on:

Sarah Shemmings or Richard Silver

Tel.:     0845 345 1244
Email:  office@shemmingsllp.co.uk

Robert Shawyer – Cardiff

Tel.:     02920 474 570
Email:  cardiff@shemmingsllp.co.uk

Don’t forget that you can also make initial contact through our free helpline 08455 1 92 92 1