TUPER – influencing a sale?

Arguably the biggest obstacle to selling a business has been the potential (employee) liability under the Transfer of Undertakings Protection of Employment Regulations 2006 (“TUPER”).  The object of TUPER is to protect employees’ rights but it can often have the opposite effect.

TUPER normally applies when someone is acquiring a business as a going concern: the purchaser is deemed to “adopt” the selling company’s financial obligations to its employees.  In the past this potential liability has jeopardised or even prevented sales of businesses.  It has also been responsible for buyers lowering their offers in order to counter a TUPER liability, thus reducing the money available for creditors of insolvent businesses.

The principal aim of the Enterprise Act was to encourage a rescue culture and promote business survival.  However, insolvency generally crosses the path of over 30 other statutes, including TUPER and for the Enterprise Act to work required harmonisation with these other statutes.

Amendments to the provisions of TUPER also intended to encourage the rescue culture but all they achieved was to increase uncertainty and ambiguity.  That ambiguity now appears to have been cleared up in an appeals tribunal decision that seems to go against the grain of protecting employees.

Enterprise 1 –v- Employees 0

In the case of Oakland –v– Wellswood (Yorkshire) Ltd the employment appeal tribunal held that where a process is “….instituted with a view to the liquidation of the (company) assets” TUPER does not apply.

The appeal judge made it quite clear there is a difference between trading a company on with the intention of selling it as a going concern (where TUPER shall apply) and the case of a business entering into an insolvency process where no trading takes place and where “…immediate steps [are taken] to sell the assets.”

At first glance commentators may applaud this decision as a victory for the rescue culture.  However, there is also some concern that companies could be placed into liquidation to avoid TUPER, rather than seeking turnaround or a sale as a going concern. 

Gary Pettit is a Licensed Insolvency Practitioner and a Director at Marshman Price who has offices in both Northampton and Wellingborough.  Should you wish to take early advice then Marshman Price can be contacted on (01604) 259574 or (01933) 270918.

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