The latest restructuring and insolvency updates and analysis from Morrison Foerster
November 29, 2023 - UK Updates and Analysis

The Administrator – An Officer of the Company?

In a welcome clarification for administrators, the UK Supreme Court in the recent case of R (on the application of Palmer) v Northern Derbyshire Magistrates’ Court[1], held that an administrator appointed under the Insolvency Act 1986 (IA 1986) is not an “officer” of the company for the purposes of section 194(3) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). Accordingly, an administrator was not liable to be prosecuted for failing to give notice to the Secretary of State of a proposed collective redundancy under section 194(1) TULRCA.

What does TULRCA say?

Section 193(2) of TULRCA mandates that an employer proposing to dismiss as redundant 20 or more employees at one establishment within a 90-day period needs to give notice to the Secretary of State at least 30 days before such dismissals are to take effect[2]. Notice is given on form HR1. Failure to notify constitutes a criminal offence under section 194 of TULRCA.  

Additionally, and crucially, section 194(3) states:

Where an offence under this section committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to neglect on the part of, any director, manager, secretary or other similar officer of the body corporate, or any person purporting to act in any such capacity, he as well as the body corporate is guilty of the offence and liable to be proceeded against and punished accordingly.

Facts

Mr Palmer was one of three joint administrators appointed to West Coast Capital (USC) Ltd on 13 January 2015 and the following day made 84 employees redundant. The HR1 form was not filed until 4 February 2015. Proceedings were bought against Mr Palmer under section 194 of TULCRA for failing to notify.

Both the Northern Derbyshire Magistrates' Court and Divisional Court held that an administrator was an officer for the purposes of section 194(3) of TULCRA not least because an administrator is appointed to manage the affairs, business and property of the company. Accordingly, Mr Palmer could be prosecuted for failing to notify. Mr Palmer appealed to the Supreme Court.

Supreme Court decision

The Supreme Court allowed Mr Palmer’s appeal and held that an administrator was not an officer of the company within the meaning of section 194(3) of TULCRA.

In coming to this decision, the Court noted that in the absence of a definition of “officer” contained in TULCRA and there being no generally accepted definition, recourse was to the IA 1986 pursuant to which administrators are appointed. The court noted there were nearly 120 references to officer in the IA 1986 as originally enacted and some 170 in its current form. None of the references suggested that an administrator was an officer of the company. Importantly, some of the references clearly showed that an administrator was not an officer of the company.  

The Court rejected the Divisional Court’s functional test approach, which looked at the words “other similar officer” to capture anyone responsible for managing the business of the company (and would therefore include an administrator). To the Supreme Court, Parliament would have used different language (and has done so in other legislation) if it had intended for the test to be functional. 

The Supreme Court further noted that long before section 194 TULRCA, the Court of Appeal held that managers and receivers appointed under a debenture were not officers of the company, even though in most cases they would have complete control over the day-to-day running of the business of the company.

Who are “officers” then?

The Supreme Court adopted what it called the “normal” meaning of “officer”, with the test being whether the person is “an officer within the constitutional structure of the body corporate”. So, whilst this does not include an administrator, it would include the company’s directors, managers, and secretaries.

What are the implications?

Redundancies can be a necessary part of saving a business as a going concern and/or to enable a sale of the distressed company to occur. Often it is left to the administrator to decide on and implement the redundancies in a short time frame, with the additional pressure that, if the administrator does not implement redundancies, they could be deemed to have accepted the employment contracts, which could then be considered an expense of the administration.

The Supreme Court’s finding that an administrator is not an officer for the purposes of sections 193 and 194 of TULRCA comes as welcome relief to insolvency practitioners that they will not incur criminal liability for failing to submit the HR1 form in discharging their statutory duties where collective redundancies are necessary.

This means that:

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Albert Khazen, London Trainee Solicitor, contributed to the drafting of this alert.

[1] R (on the application of Palmer) v Northern Derbyshire Magistrates’ Court [2023] UKSC 38.

[2] The notice period is 45 days when the proposal is to dismiss 100 or more employees.