In this post, Ingrida Jakuseva, a paralegal within the Litigation and Arbitration department at CMS, previews the decision awaited from the Supreme Court in R (on the application of Palmer) v Northern Derbyshire Magistrates Court and Anor. The application for permission to appeal will be heard by the Supreme Court on 8 March 2023.
The Supreme Court is to consider whether an administrator appointed under Part II of the Insolvency Act 1986 is a “director, manager, secretary or other similar officer of the corporate body” so as to fall within the Trade Union and Labor Relations (Consolidation) Act 1992 (“TULRCA”), s 194(3).
On 23 December 2014, the sole director of West Coast Capital (USC) Ltd (“USC”), a clothing company, decided to take steps to place USC into administration. One of the three appointed joint company administrators was Mr Palmer. On January 13, 2015, USC went into administration and, the next day, the 84 employees who worked at USC were given a letter signed by Mr Palmer informing them that they were at risk of redundancy and of USC’s intention to consult with them at a staff meeting that dayinsofar as possible within the timeframes”. Approximately 15 minutes after receipt of that letter, the employees were handed a further letter signed by Mr Palmer which informed them that they were dismissed with immediate effect. On 4 February 2015, notice of the redundancy was submitted to the Redundancy Payments Service of the Insolvency Service.
In July 2015, Mr Palmer was charged by postal requisition issued by the Secretary of State. It was alleged that Mr Palmer consented to, connived in, or neglected to prevent the failure by USC to notify the Secretary of State of the proposed redundancies, contrary to TULRCA, s 194(3).
Mr Palmer now seeks permission to appeal to the Supreme Court.
The High Court decision
Under TULRCA, s 193(2), an employer has a duty to notify the Secretary of State if it proposes to dismiss as redundant 20 or more employees at one establishment within 90 days or less. The notice must be given before giving notice to terminate and at least 30 days before the first of those dismissals takes effect.
Where there has been a failure to give such notice, an employer commits an offense and, on summary conviction, can be fined (TULRCA, s 194). Where such an offense has 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 corporate body, or any person purporting to act in any such capacity, he as well as the corporate body is guilty of the offence” (TULRCA, s 194(3)).
Before the High Court, Mr Palmer argued that, as an administrator of USC he could not properly be made the subject of a prosecution for an offense under s.194(3) because he is not a “director, manager, secretary or other similar officer” of the company in the meaning of s.194(3), because he was appointed by the court under the Insolvency Act as an administrator. Mr Palmer argued that while he was managing the company’s affairs and taking all the same types of decisions as a director would have taken prior to the company going into administration, he is not subject to the same duties as a director, as he is an agent for the company.
Further, Mr Palmer stated that, unlike the directors, an administrator’s duty is to act in the best interests of the creditors. Administrators’ duties may require an immediate release of assets in the form of redundancies, but this could place the administrator at personal risk of prosecution. Mr. Palmer contended that”[i]n such a case an administrator might find himself in the unenviable position of either committing a criminal offense or (at least arguably) breaching his statutory duties”
In the High Court’s judgment, Lady Justice Andrews stated that if administrators were given immunity from prosecution, and if only the company was held liable for the offense under TURLCA, s 194, but not the person responsible for deciding on the redundancies and signing the notices “there would be nothing to deter non-compliance, and the criminal sanction would be meaningless…If administrators are not caught by s. 194(3) it would…leave a vacuum in responsibility that would fail to protect the interests of workers and, we would add, the interests of their representatives and the Secretary of State”.
Andrews LJ stated that company directors may very well face the same conflict when acting in the best interests of the company when they would be obliged to serve the notice on the company’s behalf and, by doing so, would arguably be in breach of their duties to act in the best interests of the company similarly, the court observed that there may be cases in which an administrator might find himself in the unenviable position of either committing a criminal offense or breaching their statutory duties. However, similar to a company director, this conflict would not protect them from facing liability under s.193. The court noted that in defining “officers” within the meaning of TULRCA, it was Parliament’s intention to focus on the functions of the individuals concerned and not on who they owe their duties to.
The court stated that an administrator can be both an officer of the court and an officer of the company because in both capacities their responsibility is to manage the company’s business and property in the creditors’ interests. An administrator manages the company itself, and its business, by virtue of the office, and has the specific power to dismiss the company’s employees.
The court concluded that administrators can be prosecuted under TULRCA, s.194(3) and the court dismissed the claim for judicial review.
Whether or not the Supreme Court grants permission to appeal will affect how collective redundancies are managed by administrators.
If permission is not granted, and as noted by the High Court, it would be prudent for an administrator who has inherited a situation where the directors had already proposed to make collective redundancies, to review this decision and consider whether the plan should continue or do something else. If the plan is to proceed, the administrator should check that the requisite notice had been given to the Secretary of State and, if not, give such notice. These considerations, and the possibility of criminal prosecution for failing to comply with the duty under s 193, may well result in insolvency practitioners being cautious about accepting future appointments as an administrator.