I am often asked “what do you do”? If I reply “a regulatory solicitor”, this inevitably elicits a blank expression from the enquirer (be that a non-lawyer or lawyer), so I go on to the more long-winded version, that I am a criminal solicitor who advises business owners and other stakeholders on how to stay on the right side of the criminal law, and defends them when they get it wrong. Health and Safety is perhaps the best known of the ‘criminal/regulatory’ laws, but any of my colleagues will tell you that my practice pervades a great many areas of business life, including insolvency and employment.
Take the recent City Link case: this is a good example of how the tentacles of the criminal law invade business life – and sometimes rather unexpectedly. The case involved three former City Link directors facing criminal prosecution following a business decision not to notify the Department for Business, Innovation and Skills (BIS) of proposed redundancies prior to placing their companies into administration.
The facts have been widely reported but in a nutshell it involved three defendants, David Smith, Robert Peto and Thomas Wright, directors of City Link Limited and City Link (Properties) No.1 Ltd, both of which entered administration on Christmas Eve 2014. On Boxing Day, the Administrators gave notice to BIS that over 2,500 redundancies were in prospect, after attempts to rescue the companies seemed to have failed, and the redundancies took effect on New Year’s Eve. Let’s face it – the timing of events could not have been much worse.
By way of background, under Section 193 (1) and (2) of the snappily titled Trade Union and Labour Relations (Consolidation) Act 1992, an employer “proposing to dismiss as redundant” 20 or more employees at one establishment within a period of 90 days or less must notify BIS in the prescribed form of its proposal before giving notice to terminate contracts of employment and at least 30 days before the first of the dismissals takes place. This time limit increases to at least 45 days where there are 100 or more employees under threat of redundancy. Importantly, section 193(7) says “If in any case there are special circumstances rendering it not reasonably practicable for the employer to comply with any of the requirements of subsections (1) to (6), he shall take all such steps towards compliance with the requirements as are reasonably practicable in the circumstances…”.
Section 194(1) of the Act makes it an offence for an employer to fail to give notice to BIS in accordance with Section 193. The offence is summary only (which means it can only be dealt with by the Magistrates’ Court) and on conviction, the maximum penalty is an unlimited fine. Further, as with many other regulatory offences, there is a provision that where the offence is committed by a “body corporate” and it is proved that a director, manager, secretary or similar officer or anyone purporting to act in such capacity consented to the offence, turned a blind eye or was neglectful, then that director or senior manager will be guilty of the offence alongside the company.
What is meant by “proposing to dismiss” has been ventilated in several cases over the years and looks like it will be revisted again by the Court of Appeal next year. Suffice to say interpretation of the phrase “proposing to dismiss” and also what will be accepted as “special circumstances” invoking the “get out of jail free” card in Section 193(7), whilst extremely interesting (particularly for a regulatory solicitor like me), are topics for discussion in themselves and outside the scope of this blog.
With the City Link case, the three former directors were charged by BIS under the ‘consent, connivance or neglect’ provisions of the 1992 Act (and as a point of note were the first individuals to be prosecuted under that provision). They pleaded not guilty and were acquitted after the Deputy District Judge trying the case found that the directors genuinely believed that the sale of the company (in such manner as would preserve the jobs) was “quite probable”. Lawyers acting for BIS had argued that had the directors looked even a few days into the future, they would have seen as at 22 December 2014, when they concluded that an administration appointment was necessary, that the company’s collapse was ultimately inevitable and that it was therefore practicable for them to notify at that time. However, the Judge was of the opinion that “a director cannot be expected to put a crystal ball on his or her desk at a time of huge shock and turmoil, and predict the likely consequences of an action, unless a consequence is either the only foreseeable one or is the only consequence that can be reasonably envisaged in the circumstances.” It was observed that the companies went into administration on 24 December and that the administrators elected to keep trading until 26 December with a view to sale, with the option of redundancies if no buyer had been found by New Year’s Eve. It is not known if BIS will appeal.
What does it mean for the rest of us?
So, with my regulatory solicitor’s hat on, what are my thoughts on the City Link case and its implications for us all going forward?
- The case is a really good example, amongst a great many others, of how the criminal law can impact on business activities and impose personal liability on individual directors and other office holders, including insolvency practitioners. Readers may well be aware that at least one other prosecution has been brought under the same section in which the IP themselves has been implicated; this is due to be heard in March 2016. Cases like this focus the mind on the personal ramifications for directors and professionals of their business decisions.
- In order to protect themselves, directors of a company facing insolvency/redundancy issues should consider taking early, confidential, legal advice from solicitors with expertise in the relevant areas of law, including where appropriate, criminal law. Taking legal advice at the earliest opportunity ensures directors can take advantage of legal professional privilege which protects from disclosure, any discussions or correspondence between the directors and their solicitor. With fast moving insolvency/redundancy situations, directors may very well need guidance on issues such as notification, tactics and timings, whether they can rely on the “special circumstances” provision of the Act and how to document their decisions. Whilst an insolvency practitioner can and will advise the board of a company on the steps they should be taking, and whilst this will often provide a good level of protection in itself as it did in City Link, this advice is not legal advice and is not in any sense protected by privilege. Indeed the insolvency practitioner (who may well wish to take legal advice him/herself) is under specific duties to report any perceived criminal offences and to provide a report to BIS with a view to possible disqualification action, so directors are well advised to choose carefully who they confide their decision-making process in, and when.
- In order to bring a prosecution under the 1992 Act, BIS must be satisfied that the case meets the evidential test (i.e. there is sufficient evidence to bring the prosecution) and also the public interest test. The more mitigating features, the less likely it is to be in the public interest to bring a prosecution. If directors are invited to an interview under caution, this can be an opportunity to put forward mitigating features to try and persuade BIS not to prosecute. As an interview under caution is an important stage in any criminal investigation, directors should be legally represented. Unfortunately, it appears that the City Link case was littered with aggravating features, for instance the scale of redundancies and the timing of redundancy announcements. This is likely to have added weight to it being in the public interest to prosecute. In other cases, the early intervention of a legal team may possibly head off this sort of action.
- The decision in this case is fact specific and does not set a precedent in relation to collective redundancy notifications. As the Deputy District Judge said “…no employer should take that finding to be a precedent that an employer can avoid its responsibility under Section 193 simply by going into administration. My finding in this case that no proposal had been made is based on the evidence in this case, not on a general principle in relation to administration generally.”