The Employment Appeal Tribunal (EAT) has held in Pressure Coolers Ltd v Molley UKEAT/0272/10 that when a transferor under TUPE is subject to insolvency proceedings not instituted with a view to liquidating the transferor's assets, the Secretary of State will only meet employment liabilities that arise before the transfer.

The employer, Maestro International Limited, went into administration and was transferred to Pressure Coolers by way of a "pre pack" administration sale to allow for the acquisition of the business as a going concern.  The employee in question was dismissed shortly after the transfer and claimed unfair dismissal.  Pressure Coolers relied on TUPE regulations 8(1)-(6), under which certain employment liabilities will be met by the Secretary of State if the administration is not conducted so as to liquidate the assets (for example, if the business is transferred as a going concern). The EAT, however, held that regulations 8(1)-(6) only apply if the relevant liability has arisen before the transfer. Therefore, Pressure Coolers was liable to pay the basic award and notice pay that would otherwise have been met by the Secretary of State.

This decision highlights the importance of when dismissals are effected in an administration context.  A buyer may want to ensure that any dismissals are carried out pre-transfer to benefit from the basic payments that are recoverable from the Secretary of State.  However, as all other liabilities will still transfer to the buyer under TUPE (including any compensation for unfair dismissal or discrimination), it is still in the buyer's interests to ensure that the dismissals are fair and non-discriminatory.