Administrators facing prosecution over redundancies
The High Court has decided that Administrators can be prosecuted personally for failing to notify the Insolvency Service about collective redundancies
Following the recent decision in the High Court in R (on the application of Palmer) v Northern Derbyshire Magistrates Court, it was declared that an administrator can be held personally liable for failing to notify the Insolvency Service on collective redundancies as a result of a company being put into administration.
Under section 193 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), an employer proposing to dismiss 20 or more employees at one establishment within a 90-day period is under obligation to notify the Secretary of State in writing of his proposal. This must be done before providing notice to terminate an employee’s contract of employment under these dismissals, as well as giving at least 30 days before the first of those dismissals take place. Failure to comply is a criminal offence.
In the above case Mr Palmer’s was a joint administrator of West Coast Capital (USC) Limited, with his responsibilities being ‘preferential claims’ and ‘employees’. In January 2015, USC filed a notice of intention to appoint Administrators, causing the USC warehouse to cease operations, which consequently would lead to the dismissal of 84 employees. USC went into Administration on 13 January 2015 and the following day the administrators made all warehouse employees redundant. The Insolvency Service questioned whether a HR1 had been sent, where it was found that it had overlooked sending the form which was subsequently emailed on 4 February 2015, despite being signed and dated by Mr Palmer on 14 January 2015. Criminal charges were issued against Mr Palmer due to his failure to comply with section 193 TULSCA.
It was the High Court’s decision which found the original ruling to be correct. An Administrator can be prosecuted under section 194 TULRCA. This was because when the Administrator assumes office, no one else could give statutory notice on behalf of the company without the Administrator’s direction. An Administrator is both an officer of the court and an officer of the company.
Due to the confirmation of the decision, it is important that Administrators/Liquidators and Companies consider whether plans made for the company may result in redundancies of more than 20 people. If this is the case, the office-holder should submit the HR1 without delay.
NOTE: Nothing in this article constitutes legal advice or gives rise to an advisor/client relationship. Specialist legal advice should be taken in relation to your specific circumstances. This article is provided for general information purposes only. Whilst we endeavour to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and we do not accept any liability for error or omission as it is based upon our interpretation of the law. Please be aware that the legal circumstances may have changed since this article was first published in December 2021 and you should contact us for specific up to date advice on your circumstances.
The return of Crown Preference
It has been confirmed that from 1 December 2020 the UK tax authority, HMRC will move back up the creditor rankings in English insolvency proceedings in respect of certain taxes. It means they will rank ahead of floating charge holders and unsecured creditors in respect of certain taxes, including VAT, PAYE income tax and employees’ national insurance contributions. The new change will not affect corporation tax and employer national insurance contributions, in relation to which HMRC will remain an unsecured creditor.
The new regime will not harm secured creditors with fixed security, who will continue to take priority over preferential creditors. It will, however, affect lenders with floating security, especially as the portion of floating charge realisations set aside to be paid to unsecured creditors in an insolvency will increase from £600,000 to £800,000. The payments to HMRC will be made from the proceeds of floating charge assets before amounts owed to the floating charge holders are paid. As a result of this change, smaller businesses may find it harder to have access to significant borrowing if the only security available for borrowing is a floating charge, especially in what is already a difficult economic environment.
Another important consideration is that, with the introduction of the new law, HMRC will have its preferential status even ahead of floating charge holders under floating charges created before the law was introduced. The effect is, therefore, retrospective as there are no time limits or financial caps.
So, what does this all mean? Martin Kingman, CEO of Professional Legal Collections Ltd, is an experienced insolvency lawyer: “Ultimately, the impact is likely to mean less cash for businesses, at a time when businesses need it most. The Regulations will lead to a reluctance in lenders providing corporates with funding, and many lenders will be concerned about the existing loans given the lack of time bar to the Regulations. One benefit may be that there is greater transparency and dialogue between a lender and the borrower. Lenders may consider requiring borrowers to make certain disclosures about the tax position of the borrower, provide financial updates during the duration of the loan, and allow the lender access to the relevant company records. I expect to see a sharp rise in the demands for Director personal guarantees”
At a time when business is still suffering the impacts of the COVID-19 pandemic and access to finance is more crucial than ever to keep cash flowing in business, the re-introducing crown preference is likely to impede the recovery of many viable companies. If you have any queries relating to any of the matters above, or require some further guidance then help is at hand. Please contact us at Professional Legal Collections Ltd for expert advice.
NOTE: Nothing in this article constitutes legal advice or gives rise to an advisor/client relationship. Specialist legal advice should be taken in relation to your specific circumstances. This article is provided for general information purposes only. Whilst we endeavour to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and we do not accept any liability for error or omission as it is based upon our interpretation of the law. Please be aware that the legal circumstances may have changed since this article was first published in November 2020 and you should contact us for specific up to date advice on your circumstances.