One large step for TUPE, no small steps for pre-packs

If anyone was in any doubt, the Court of Justice of the European Union (CJEU) has recently confirmed something we have known in the UK for a long time. In the Dutch case of Frederatie Nederlandse Vakvereniging v Smallsteps BV [2017] (FNV v Smallsteps) the CJEU held that TUPE still applies when a company is bought out of a pre-pack administration. Sometimes, the pre-pack and the sale happen almost simultaneously or within 24 hours of each other.

TUPE is intended to safeguard employees’ rights on the transfer of a business. However, the protection afforded by TUPE does not apply where the seller is the subject of liquidation proceedings or ‘similar insolvency proceedings’ where those proceedings are instigated with a view to liquidate the assets.

It has already been determined in the UK that a pre-pack insolvency is not a process that is ‘instigated with a view to liquidating the assets’ and therefore TUPE does apply. The Court of Appeal in the case of De’Antiquis v Key2Law (Surrey) LLP [2000] EXCA (Civ) 1567 took an absolute approach to the question of whether sales by an administrator of an insolvent company are covered by TUPE. It held that the TUPE exemption would never apply to purchases from administrators, pre-pack or no pre-pack; even though liquidation is the typical outcome, the stated first objective of the administration process is supposedly the rescue of the company as a going concern. Whether or not that objective is chosen or even possible, the option itself takes the process outside of the scope of the TUPE exemption.

In short, the CJEU agrees with the Court of Appeal; which is great news!

If you have any specific questions arising, please do not hesitate to contact Linky Trott – Partner, or any member within our Employment and Restructuring & Insolvency team for advice.

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