UK Administrators can be criminally liable for failure to notify Secretary of State of collective redundancies

Quick read

Please note that this judgment was set aside by the Supreme Court on 1 November 2023, see our alert here.

The High Court recently decided that a prosecution could be brought against an administrator under the Trade Union and Labour Relations (Consolidation) Act (TULRCA) in R (on the application of Palmer) v Northern Derbyshire Magistrates' Court [2021] EWHC 3013.

If an employer plans to make 20 or more employees at one establishment redundant within 90 days, it must inform the Secretary of State (SofS) at least 30 days before the dismissals using Form HR1. Failure to do so is a criminal offence and ‘any director, manager, secretary or similar officer of the employer company’ may be held liable (Section 194 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA)). An employer will be liable on summary conviction to a fine not exceeding level 5 on the standard scale. Prior to 12 March 2015, Level 5 criminal fines were subject to a maximum of £5,000, offences committed after that date are punishable by an unlimited fine.

Facts

Mr Palmer was appointed joint Administrator of USC, with responsibility for “Preferential Claims/EE’s”, on 13 January 2015. The following day, 84 employees were made redundant. Mr Palmer submitted Form HR1 on 4 February 2015, over 2 weeks after the dismissals.

Criminal charges have been brought against Mr Palmer (and a former director of USC) under s.194(3) TULRCA.

Decision

The High Court rejected the administrator's judicial review challenge and decided that a prosecution could be brought against an administrator under TULRCA. An administrator is an officer of the company and may be personally liable for the offence in the same way as company directors. Once the administrator takes office there is no-one else who could give the statutory notices on behalf of the company.

The Court accepted that making administrators criminally liable under section 194(3) could lead to potential conflicts between an administrators' duties to creditors (eg where a business is untenable and it would be in the creditors' best interests to cease trading immediately) and the requirement to give 30 days' notice to the SofS. But if this leads to a surge in winding-up, or to insolvency practitioners refusing to take on the role of administrator, that is 'a matter for Parliament to address'.

Government Guidance to insolvency practitioners for consulting on collective redundancies in insolvency situations promised in April 2018 remains in the pipeline. This decision will no doubt see increased pressure by the insolvency profession for this Guidance to be published.

Practical steps

In the meantime:

an insolvency practitioner considering an appointment as an administrator should bear in mind the potential problems and conflicts that may arise in complying with TULCRA
immediately upon appointment assess whether the administration would lead to redundancies of 20 employees or more and, if so, submit form HR1
if the directors have already proposed to make redundancies and the administrator decides to go ahead with that proposal, check to see if the requisite notice had been given to the SofS and if not, give the notice.