Supreme Court confirms the Administrator of Sports Direct subsidiary is not an officer within the meaning of TULRCA

The Supreme Court judgment in the case of R (on the application of Palmer) (Appellant) v Northern Derbyshire Magistrates Court and another (Respondents) was handed down on 1 November 2023.

The Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”) imposes duties on employers who intend to make 20 or more employees redundant within 90 days or less, including a requirement to give notice to the Secretary of State pursuant to sections 193(1) and (2) of TULRCA. This notice requirement is in addition to the perhaps better known obligation of employers to engage in a collective consultation process with the appropriate representatives of affected employees in such circumstances (an obligation pursuant to section 188 TULRCA). 

The requirement on employers is to give notice to the Secretary of State before serving notice of termination of employment to the affected employees and at least 30 days before the first of those dismissals takes effect (at least 45 days before the first dismissal takes effect if the employer is proposing to make 100 or more employees redundant within a 90-day period). This is done by submitting a Form HR1.  

Where such an obligation arises, an employer who fails to comply commits an offence under section 194(1) of TULRCA. If it is proved that this offence is committed by a corporate entity with the consent of, or can be attributed to neglect on the part of a director, manager, secretary or other similar officer of that corporate entity (or any person purporting to act in any such capacity), that person also commits an offence (section 194(3) TULCRA).

The question before the Supreme Court in this case was whether an Administrator appointed under the Insolvency Act 1986 (the “IA 1986”) falls within the definition of “officer” under section 194(3) TULRCA.

Background

A statutory demand was served on West Coast Capital (USC) Ltd (“USC”) for nearly £1.3million on 17 December 2014. The sole director of USC, Mr Michael Forsey resolved to take steps to place USC in administration. The appellant, Mr Palmer was appointed as one of three joint administrators of USC on 13 January 2015, and had responsibility for employees and preferential claims. On the same day as their appointment the administrators sold the USC business to another company in the Sports Direct Group as a “pre-pack” sale.

On 14 January 2015, employees of a USC warehouse were handed a letter signed by Mr Palmer stating that they were at risk of redundancy, and notifying them of an intention to consult with them at a staff meeting. Shortly afterwards, they were handed a further letter also signed by Mr Palmer, dismissing them with effect from that day. No notice was given to the Secretary of State until the relevant form was emailed by Mr Palmer on 4 February 2015.

Criminal proceedings were commenced against Mr Palmer as a result of his failure to give notice to the Secretary of State in line with section 194 of TULRCA. Mr Palmer argued he had not committed an offence, because he was not an officer of the company, but an administrator appointed under the Insolvency Act 1986 (“IA 1983”). The Magistrates Court held that Mr Palmer was an officer. Mr Palmer sought to judicially review this decision to the Divisional Court, but was unsuccessful, and subsequently appealed to the Supreme Court.

Decision of the Supreme Court

The Supreme Court found that in the absence of a definition of officer under TULRCA, it is necessary to look to the IA 1986. It held that the relevant provisions of the IA 1986 provide a clear picture it was not the intention or effect of the legislation to classify an administrator as an officer of a company.

The Court dismissed Mr Palmer’s submission that the inclusion of administrators in the definition would create a dilemma for administrators forcing them to choose between acting swiftly in achieving the aims of the administration or complying the notice requirements under TULRCA. It confirmed that companies in administration are not excluded from the requirements under TULRCA and so someone falling within the definition of officer would not be excluded on this basis.

The respondent’s argument that excluding administrators from the definition under s194 TULRCA would leave a vacuum in responsibility was also dismissed by the Court. The Court found that if the intention of the legislation was to adopt a functional test by expanding the definition in this way, there would have been no difficulty in expressly doing so.

 The Supreme Court held that in determining whether someone is an officer of a company in the context of TULRCA, it is necessary to consider whether the person holds an office within the constitutional structure of the body corporate, which Mr Palmer did not, and his appeal was therefore allowed.

Implications for Administrators and Liquidators

This decision provides welcome clarification for administrators and liquidators, and resolves the ambiguity created by earlier case law, which the Supreme Court found was wrongly decided, and had failed to consider the clear distinction drawn in IA 1986 between administrators and liquidators on the one hand and officers of a company on the other. It is therefore clear Administrators do not face the risk of criminal liability under TULRCA for failing to comply with obligations placed on company officers. 

Implications for Employers

Most employers are aware that proposing to implement large scale redundancies is likely to trigger a legal obligation to engage in collective consultation with appropriate employee representatives in accordance with the provisions of TULRCA. What is not always “front of mind” and may be overlooked in these circumstances is the obligation to inform the Secretary of State of the proposed redundancies.

This decision is an important reminder for company directors (and other managers falling within section 194(3) TULRCA) that they may be personally liable to criminal proceedings and punishment in the event that their company fails to comply with this obligation. This personal liability is separate (and in addition to) to the liability of the corporate entity (employer) itself.

The case is also a clear indication of the fact that compliance with section 193 TULRCA is monitored and enforced by the Secretary of State.

Further information 

For further information on the issues raised in this blog, please contact Nick Hughes in our Restructuring and Insolvency team, or Nick Ralph in our Employment team.

ABOUT THE AUTHORS

Nick Ralph is a highly experienced employment lawyer with an exceptionally strong reputation in the City of London and beyond. He is a tenacious litigator and a tough negotiator with particular expertise in dealing with complex issues involving combinations of employment, partnership and related rights, including: Financial Services, Directors and Officers, Employee incentives, Regulated Professionals, Sexual Misconduct in the workplace, and the rights and obligations of directors, officers and/or partners/LLP members. 

Nick Hughes is a Partner in the Restructuring & Insolvency practice. He has specialised in insolvency work since 2001 and is primarily office holder focused. His expertise includes:

• transactional work, mostly pre-pack sales (and purchases) and the consequences of such transactions, ROT disputes, security reviews and disclaiming onerous assets;
• contractual and other disputes with which IPs either find themselves thrown into upon appointment or choose to pursue to realise assets for creditors;
• pursuing claims against the directors, their associates or other typically connected parties to recover assets which have been diverted in various ingenious ways from the insolvent entity into the wrong hands.