TUPE, Insolvency and the National Insurance Fund

Thanks to Claire Darwin of Matrix Chambers for preparing this case summary

Is the Secretary of State for Business, Innovation and Skills (in accordance with the statutory scheme at Part XII of the Employment Rights Act 1996) liable for debts which accrue after a TUPE transfer?

No, held the EAT in BIS v Dobrucki.

The ordinary position is that any debts owed to employees by a transferor will transfer to the transferee under Regulation 4 of the TUPE Regulations 2006, even if those debts have not yet accrued or crystallised at the time of the transfer.

However, Regulation 4 is disapplied if the insolvency proceedings are analogous to bankruptcy proceedings and have been instituted with a view to liquidation of the assets and are under the supervision of an insolvency practitioner (Reg 8(7)).

Further, Regulation 4 is modified if the purpose of the insolvency proceedings is not with a view to liquidation of assets so that it does not transfer liability for the sums payable to the relevant employee under the statutory schemes (Reg 8(5)). The transferee will remain liable for other debts however, including sums in excess of those available under the statutory schemes.

Accordingly, the employment tribunal was wrong to hold that the Secretary of State was liable for sums owed in respect of post-transfer dismissals by the transferee. Such sums had never been owed by the transferor (because they related to post-transfer events), and therefore liability for such sums could not have transferred under Regulation 4.

The Employment Appeal Tribunal held that the statutory scheme at Part XII of the Employment Rights Act 1996 can only apply to the liabilities of the transferor i.e those debts which have accrued prior to or coincident with the transfer. The deeming provisions in Regulation 8(3) of the TUPE Regulations 2006 do not alter the position and do not have the effect that debts which have accrued post-transfer become the responsibility of the Secretary of State.