The EAT recently considered five appeals (together) which required it to address the issue of whether or not the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) applied to pre-pack administrations. A pre-pack administration is a pre-arranged sale by a company in administration of its business and assets that completes either immediately upon the appointment of the administrator of shortly thereafter.

This is the opposite of the usual process, where the administrator does not begin marketing the business until after their appointment.

The issue to be decided by the EAT in all five appeals was whether or not administration proceedings under Schedule B1 of the Insolvency Act 1986 constituted, or could constitute, “insolvency proceedings…instituted with a view to the liquidation of the assets of the transferor”.

If they did, then TUPE would apply and the terms and conditions of the employees’ contracts would be protected following the appointment of an administrator and the subsequent sale of the business as a going concern.

The competing contentions were (1) that administration proceedings could never amount to insolvency proceedings (the absolute approach) or (2) that they could, where it was found as a fact that the administration was instituted with a view to liquidating the transferor’s assets (the fact-based approach).

The EAT preferred the absolute approach, giving consideration to the nature of the proceedings rather than to the intentions of the administrator which are not always clear or obvious.

Furthermore, the EAT considered that the interests of employees are safeguarded by the application of the absolute approach whereas applying the fact-based approach would only afford employees the limited protection offered by the Secretary of State’s guarantee to pay any redundancy pay, notice pay, arrears of pay or holiday pay owed.

OTG Limited and others v Barke and others