Insolvency law and employment law are similar to the ends of magnets. Both being north pole ends (or south, if you prefer) that are constantly repelling against one another. Whilst there is no sight of an attraction between both in the near future, Insolvency Practitioners need to be aware of the decision in the case of ‘R v North Derbyshire Magistrates Courts and others’ as it confirms that they can be criminally liable for not notifying the Secretary of State (‘SoS’) about proposed collective redundancies.
R v North Derbyshire Magistrates Courts and others [2021] EWHC 3013 (Admin)
The Queen’s Bench Divisional court had to consider a Judicial Review application which dealt with, amongst other matters, the criminal liability of a company administrator for the company’s failure to comply with the requirements of section 193 (1) Trade Union Labour Relations (Consolidation) Act 1992 (‘TULCRA’).
The charge was made under section 194 of TULCRA that the administrator had connived in or consented to the company’s failure to give notice of proposed redundancies.
The court considered section 188 of TULCRA and the requirements to give 30 days’ notice if 20 or more employees were proposed to be made redundant at one establishment. That consultation period increasing to 45 days if the number of proposed employees to be made redundant increased to 100 or more.
Section 193 of TULCRA creates an obligation on the part of the employer to notify the SoS of proposed redundancies with the same timings as set out in section 188.
Section 194 of TULCRA makes it a criminal offence not to notify the SoS of the intended redundancies. If a corporate body has committed an offence “with the consent or connivance of or to be attributable to neglect on the part of any director, manager, secretary or other similar officer of the body corporate, or any person purporting to act in such a capacity, he as well as the body corporate is guilty of the offence and liable to be proceeded against and punished accordingly”.
The obvious link between sections 188 and 193 was noted by the court.
Administrators of the company were appointed on 13th January 2015. On 14th January the employees were initially handed a letter advising that there was a risk of redundancies and there was an intention to consult in so far as was possible in the timeframe. Some 15 minutes later, the employees were handed a letter advising that the company had not been able to identify any alternative to redundancy and they were dismissed with effect from that day.
There was a failure by the administrator to file an HR1 form with the SoS. The Redundancy Payments Service (‘RPS’) asked the administrator on 30th January 2015 whether an HR1 had been sent. An HR1 form was received by email at the RPS on 4th February 2015. It was dated 14th January 2015 and was signed by the administrator. The explanation was that the form had not been fully completed and inadvertently held on file. The fact that this had happened had been overlooked until contact was made by the RPS.
The court considered that an offence had been committed by the company in that the requisite notice had not been given to the SoS. The issue was whether the administrator was a person who could have liability under section 194 of TULCRA in that the offence had been committed with the consent or connivance of the administrator and whether he fell within the categories of persons caught by that section.
It was pointed out to the court that to impose such liability on administrators would give them an impossible burden in that they would be forced to trade such companies for a period of 30 days. That would be untenable if the company simply did not have the means to trade. Even if there were sufficient funds to pay wages, the administrator would have to consider continuing to pay those wages when the company was not viable to the detriment of creditors. This put the administrator in the invidious position of having to choose either between committing a criminal offence in not giving notice to the SoS or breaching duties to creditors in continuing to make payments out of company assets to the detriment of those creditors.
The ultimate conclusion reached by the court in deciding the question was that an administrator was within the category of person envisaged by section 194 of TULCRA as being a “similar officer”. The finding on this point at paragraph 131 of the judgment was:
“It is clear from the language of s.194(3), reinforced by s.194(4), that the focus is upon any individual acting in a sufficiently senior managerial capacity who could be regarded as bearing some responsibility, in practical terms, for the corporate body’s failure to give the requisite notice to the Secretary of State. We cannot accept that Parliament intended that a person who assumes a managerial role in succession to the directors, and who has all the same powers, including an express power of dismissal of the company’s employees, should be excluded merely because their duties are not identical to those of a director nor owed to the same persons”.
It was recognised by the court that if this interpretation of the statute were to cause practical difficulties for administrators, were to lead to a surge in liquidations and a whole sale refusal on the part of insolvency practitioners to take administration appointments, that was a matter for Parliament to address.
Key takeaways
- The court recognised that a prospective administrator has no standing to submit Form HR1 on behalf of a company until appointed.
- The SoS must be informed at least 30 days before dismissals using Form HR1 if an employer plans to make 20 or more employees redundant within 90 days.
- On pre-appointment matters, an IP should ask the director(s) whether they had already proposed redundancies and check whether Form HR1 had been submitted (if 20 or more employees).
- When considering an appointment as an administrator, an IP should bear in mind the potential problems and conflicts that may arise in complying with TULCRA and seek appropriate legal advice if uncertain on any aspects.
- Following appointment an IP/administrator should assess whether redundancies are likely to occur. Form HR1 should be submitted immediately where 20 or more employees are proposed to be made redundant at one establishment. If the director(s) had already submitted Form HR1, IPs should check the information on the form remains correct and submit a further form if necessary.
The R3 Technical Team would like to thank GTC members, Graham McPhie (Partner, Wedlake Bell LLP) and Stephen B Hill (Associate Director, Insolvency and Restructuring Risk, Grant Thornton LLP) for their contributions to this alert for members.