A recent decision by the High Court has established that an administrator of a company in administration is an officer of the company for the purpose of collective redundancy rules. This means that an administrator can be prosecuted personally for failing to notify the Insolvency Service of collective redundancies being made by the company in administration.
Under UK law, where an employer proposes to dismiss 20 or more employees at one establishment within a period of 90 days, it has an obligation to notify the Secretary of State in writing before giving notices of termination and at least 30 or 45 days before the first dismissal takes effect. Failure to comply with this requirement is a criminal offence.
The case in question involved Mr Palmer, one of the joint administrators of West Coast Capital (USC) Limited, a wholly owned subsidiary of Sports Direct.com Limited. USC went into administration, and the warehouse employees were made redundant. Criminal charges were issued against Mr Palmer for failing to comply with the notification requirements.
The High Court rejected Mr Palmer’s judicial review application and decided that an administrator can be prosecuted for an offence under section 194 TULRCA. It stated that an administrator, by virtue of their office, manages a company and has the power to dismiss the company’s employees. Once an administrator assumes office, there is no one else that could give the statutory notice (the HR1 form) on behalf of the company without the administrator’s direction.
This decision has implications for administrators of companies in administration, as it puts them in a difficult position. They have duties to creditors, and an obligation to give the Insolvency Service at least 30 days’ advance notice of proposed redundancies before the dismissals take place could put administrators in a position of conflict, particularly where a business is fundamentally untenable (as is more often than not the case).
In light of this decision, administrators will need to reach a view about whether the plan for the company would lead to redundancies of 20 or more employees as one of their first tasks upon appointment. Ideally, they will need to make plans even before then. If they inherit a situation where the directors had already proposed to make redundancies, they will need to make their own decision about whether to implement that plan and when. If an administrator decides to go ahead with a collective redundancy proposal, they will need to submit the HR1 form without delay, if the directors have not already done so.
The decision means that administrators can be held personally liable for the company’s failure to comply with the notification requirements. It remains to be seen whether this will lead to an increase in prosecutions of administrators, but it highlights the importance of complying with the law to avoid potential criminal charges.