Anyone who has acquired a business as a going concern will be aware of The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) and its far reaching application.
TUPE legislation exists for good reason: to ensure automatic transfer of employment for employees when the business for which they are working is transferred.
You cannot contract out of its application.
In insolvency situations, however, an exception has been made which applies to an entity:
- being the subject of bankruptcy or any analogous insolvency proceedings, that have been instigated with a view to the liquidation of its assets (please note that this does not apply to administrations); and
- being under the supervision of an Insolvency Practitioner.
In this case, the employees employed by the entity lose their right of automatic transfer. This means that an entity purchasing assets as a going concern can cherry-pick the employees that it wishes to retain (if any) and can employ them on new terms, if they so wish.
It should be noted, however, that if any of the employees are retained, even if their employment terms are changed, their continuity of employment is likely to be preserved.
For this exception to apply it is imperative that the Insolvency Practitioner has been officially appointed before the transfer.
The exception detailed above is of great assistance to Insolvency Practitioners, as it allows greater flexibility in terms of the transfer of assets, which can promote a more attractive deal, which in turn is likely to lead to a higher purchase price.
If you have any questions about any of the issues raised in this article, please contact Caroline Cropley (Senior Associate) in our Corporate and Commercial Team by telephone on 020 7216 5551 or by email at c.cropley@druces.com
