In order to promote a "rescue culture", TUPE says that where the transferring business is the subject of bankruptcy or insolvency proceedings instituted "with a view to the liquidation of the assets of the transferor", the employees will not transfer and any dismissals connected with the transfer are not automatically unfair.
The issue in Crossroads Caring Scotland Limited v McGuire was whether a decision to appoint provisional liquidators fell within this exemption or whether there was a TUPE transfer to the transferee before the company went into liquidation. The timeline of events was:
- 2 March – the company wrote to employees stating that it would cease operating at midnight on 1 April.
- 26 March – the directors resolved that it was in the best interests of the creditors to apply to have the company wound up.
- 1 April – provisional liquidators were appointed.
- 2 April – employment of the claimants by the "transferee" company began.
- 27 April – a winding up order was granted.
- 18 June – joint liquidators were appointed.
In Key2Law (Surrey) LLP v De'Antiquis, after a long period of uncertainty about the status of administrations, the Court of Appeal decided that administration proceedings are not capable of coming within the insolvency exception, regardless of whether on the facts the administrator's purpose was to rescue the business as a going concern. The normal TUPE rule that employment obligations transfer will always apply.
Here, the Tribunal decided that the decision to appoint provisional liquidators could be equated with an administration, so the exemption didn’t apply and there was a service provision change.
The EAT sent the case back to the Tribunal for a fresh decision. There had been no explanation as to why the appointment of provisional liquidators – a procedure generally intended to preserve assets – was analogous to administration. The lynchpin of the decision in Key2Lawwas that the insolvency rules specify that an administrator's primary objective is to rescue the company as a going concern. That didn’t apply in this case and there had to be a proper assessment of the nature of the particular scenario.