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TUPE applies to “pre-pack” administrations

SM
BY Sophie Macphail
Employment law
BG Purple

Deciding whether or not the TUPE Regulations apply to a particular situation can be a tricky question, particularly when the company in question enters insolvency. The TUPE rules are reasonably clear that if the company is to be liquidated (i.e. wound up and assets sold in order to pay off debts) TUPE will not apply. However, where the company is undergoing “relevant insolvency proceedings” (for example, administration) there is some doubt about whether TUPE will apply. A recent case heard by the ECJ has held that a “pre-pack” administration will not avoid the application of TUPE.

 

The case, FNV v Smallsteps, involved a group of childcare centres which were sold as part of a “pre-pack” administration in the Netherlands. The employees argued that the Dutch equivalent of TUPE (both derived from the EU Acquired Rights Directive) should have operated to transfer their employment to the company taking over the centres. The company sought to argue that because the centres were purchased via a pre-pack administration there was no transfer. 

 

The ECJ held that the staff should transfer since the pre-pack was primarily aimed at rescuing the original company as a going concern. This was the case even though one of the aims of the administration was to maximise the proceeds of the sale in order to pay the old company’s creditors.  The case confirms the decision of the UK Court of Appeal in Key2Law (Surrey) LLP v De'Antiquis in which it was decided that administrations can never be “terminal” insolvency proceedings which avoid TUPE since the primary aim is to salvage the business. The decision brings an additional layer of certainty to businesses facing insolvency proceedings and companies looking to acquire such businesses. 

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