Secretary of State for Business and Trade v Simran Sahonta & Ors

Morton’s Rolls Ltd (“Morton”) was a bakery business, making rolls, pastries, doughnuts and bread. Morton got into financial difficulties. Its employees were laid off. Ultimately, Morton went into compulsory liquidation. Another company called Phoenix Volt Ltd (“Phoenix”) rescued part of the bakery business. This case is about the rights of Morton’s former employees.

In some insolvency situations, employees are eligible for payments from the national insurance fund, to cover debts due to them such as arrears of pay and a basic award of compensation for unfair dismissal. Employees of Morton (the “claimants”) sought payments from the national insurance fund, but the Secretary of State for Business, Energy and Industrial Strategy (“the Secretary of State”) declined their request. The Secretary of State considered that there had been a transfer of Morton’s undertaking to Phoenix, under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). The Secretary of State argued that the transfer had happened prior to a winding up order being made in respect of Morton, with the result that Phoenix was responsible for employees of Morton, and payments were not due from the national insurance fund.

The claimants brought a claim against the Secretary of State for payments from the national insurance fund in the Employment Tribunal (“the tribunal”). Morton and Phoenix were also respondents. There are two groups of claimants, who are the first and second respondents in this appeal, together numbering approximately 140 former employees of Morton. The tribunal held a preliminary hearing at which it heard evidence, to determine whether some or all of the claimants’ contracts of employment transferred to Phoenix under TUPE. On 8 November 2024, the tribunal decided that there was a relevant transfer to Phoenix on 21 March 2023. The tribunal also decided that the transfer was subject to regulation 8(7) of TUPE, because at the time of the transfer Morton was the subject of insolvency proceedings, instituted with a view to the liquidation of Morton’s assets and under the supervision of an insolvency practitioner. That meant the contracts of employment and dismissal rights of all of Morton’s employees had not transferred to Phoenix. The claimants argued they were entitled to claim payments from the national insurance fund.

The Secretary of State has appealed against the decision of the tribunal, on two separate grounds. The Secretary of State as appellant argues, in short, that the tribunal erred in law in respect of the date of the transfer, and the date of institution of the insolvency proceedings, and should have found regulation 8(7) of TUPE did not apply. The appeal is resisted by the claimants as first and second respondents, and by Phoenix as third respondent, who argue that the decision of the tribunal should be upheld. Morton is taking no part in the proceedings. Parties provided skeleton arguments, authorities and made oral submissions, all of which have been taken into account in determining this appeal.

The parties agreed the following chronology as background context for the appeal, although the tribunal’s findings were more extensive.

Chapter VI of Part XI and Part XII of the Employment Rights Act 1996 (“ERA”) contain provisions about payments from the national insurance fund. Section 182, in Part XII of the ERA, is entitled “Employee’s rights on insolvency of employer” and provides as follows:

“If, on an application made to him in writing by an employee, the Secretary of State is satisfied that—

(a)

the employee's employer has become insolvent,

(b)

the employee's employment has been terminated, and

(c)

on the appropriate date the employee was entitled to be paid the whole or part of any debt to which this Part applies,

the Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount to which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt”.

There are various definitions of “become insolvent” in section 183 of the ERA (and section 166 within Part XI). The amount to which employees are entitled under section 182 is determined by factors such as the definition of debt (section 183), the amount due on the “appropriate date” (defined in various ways in section 185), and statutory maximum limits (section 186). Section 188 makes provision for complaints to tribunals about payments from the fund. Section 189 transfers employee rights and remedies against an employer to the Secretary of State, in the event that payments are made from the fund.

TUPE applies to transfers of businesses or undertakings (or parts of them). If there has been a relevant transfer under regulation 3 of TUPE, then in most cases, all contracts of employment transfer to the transferee of the business under regulation 4, and employees have various dismissal rights against the transferee under regulation 7.

However, the effect of TUPE may be moderated in an insolvency situation (regulations 8 and 9). Regulation 8 of TUPE is headed “Insolvency” and provides:

“(1)

If at the time of a relevant transfer the transferor is subject to relevant insolvency proceedings paragraphs (2) to (6) apply.

(2)

In this regulation “relevant employee” means an employee of the transferor—

(a)

whose contract of employment transfers to the transferee by virtue of the operation of these Regulations; or

(b)

whose employment with the transferor is terminated before the time of the relevant transfer in the circumstances described in regulation 7(1).

(3)

The relevant statutory scheme specified in paragraph (4)(b) (including that sub-paragraph as applied by paragraph 5 of Schedule 1) shall apply in the case of a relevant employee irrespective of the fact that the qualifying requirement that the employee's employment has been terminated is not met and for those purposes the date of the transfer shall be treated as the date of the termination and the transferor shall be treated as the employer.

(4)

In this regulation the “relevant statutory schemes” are—

(a)

Chapter VI of Part XI of the 1996 Act;

(b)

Part XII of the 1996 Act.

(5)

Regulation 4 shall not operate to transfer liability for the sums payable to the relevant employee under the relevant statutory schemes.

(6)

In this regulation “relevant insolvency proceedings” means insolvency proceedings which have been opened in relation to the transferor not with a view to the liquidation of the assets of the transferor and which are under the supervision of an insolvency practitioner.

(7)

Regulations 4 and 7 do not apply to any relevant transfer where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner”.

Regulation 8(3) and (4) of TUPE refer to payments from the national insurance fund, such as those sought by the claimants in this case under Part XII of the ERA. Regulation 8(7) disapplies Regulations 4 and 7 of TUPE in certain insolvency situations.

TUPE implemented the Acquired Rights Directive (Council Directive 2001/23/EC of 12 March 2001) (the “Acquired Rights Directive”), which aimed to safeguard employee rights if businesses were transferred. Article 5 is of particular relevance to the second ground of appeal in this case, and provides as follows:

“1.

Unless Member States provide otherwise, Articles 3 and 4 [governing transfer of contracts of employment and dismissal rights] shall not apply to any transfer of an undertaking, business or part of an undertaking or business where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of a competent public authority (which may be an insolvency practitioner authorised by a competent public authority).

2.

Where Articles 3 and 4 [governing transfer of contracts of employment and dismissal rights] apply to a transfer during insolvency proceedings which have been opened in relation to a transferor (whether or not those proceedings have been instituted with a view to the liquidation of the assets of the transferor) and provided that such proceedings are under the supervision of a competent public authority (which may be an insolvency practitioner determined by national law) a Member State may provide that:

(a)

notwithstanding Article 3(1), the transferor's debts arising from any contracts of employment or employment relationships and payable before the transfer or before the opening of the insolvency proceedings shall not be transferred to the transferee, provided that such proceedings give rise, under the law of that Member State, to protection at least equivalent to that provided for in situations covered by Council Directive 80/987/EEC of 20 October 1980 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer(7), and, or alternatively, that,

(b)

the transferee, transferor or person or persons exercising the transferor's functions, on the one hand, and the representatives of the employees on the other hand may agree alterations, in so far as current law or practice permits, to the employees' terms and conditions of employment designed to safeguard employment opportunities by ensuring the survival of the undertaking, business or part of the undertaking or business.

…..

4.

Member States shall take appropriate measures with a view to preventing misuse of insolvency proceedings in such a way as to deprive employees of the rights provided for in this Directive”.

The Employment Appeal Tribunal was not addressed in detail about the European Union (Withdrawal) Act 2018 and Retained EU Law (Revocation and Reform) Act 2023, and their effect in this case. However, it was not in dispute that TUPE is part of UK law and fell to be applied by the Employment Tribunal. In interpreting TUPE, the Acquired Rights Directive may be an external aid to construction; the Directive may assist in ascertaining the mischief being addressed and the purpose of provisions, helping with a purposive interpretation of a provision in TUPE. Previous cases from both the UK and the Court of Justice of the European Union (“CJEU”) may also be of assistance when interpreting and applying the provisions of TUPE. It is permissible to have regard to both pre-withdrawal and post-withdrawal decisions of the CJEU for any illustrative or persuasive effect they may have, but they are not binding.

The tribunal concluded that there had been a relevant transfer of an undertaking from Morton to Phoenix under regulation 3 of TUPE. That conclusion is unchallenged in this appeal. However, the Secretary of State argues that the tribunal misdirected itself in law when it reached the conclusion that the date of that transfer was 21 March 2023 (when Phoenix started production), as opposed to 3 March 2023 (the date of the Agreement). The claimants and Phoenix argue there was no such misdirection, and that the date of the transfer was a question of fact for the tribunal to be determined on the evidence.

In Melon v Hector Power Ltd [1980] SC 188, the court set out familiar principles governing the approach of appellate tribunals to decisions of tribunals of original jurisdiction. The appellate tribunal may only intervene if the original tribunal misdirected itself in law, entertained the wrong issue, proceeded upon a misapprehension or misconstruction of the evidence, took into account irrelevant matters, or reached a perverse decision (at 198). Dicta in DPP Law v Greenberg [2021] IRLR 1016 reiterate that a decision of a tribunal must be read fairly, as a whole, and not hypercritically. Further, if the tribunal has correctly stated the legal principles to be applied, an appellate tribunal should be slow to conclude those principles have not been applied, and should only do so where it is clear from the language used that a different principle has been applied to the facts found (paras 57 and 58).

It is necessary to identify the legal principles governing the date of transfers under TUPE, before examining the decision of the tribunal for any misdirection in law.

TUPE applies, under regulation 3, to

“a transfer of an undertaking, business or part of an undertaking or business…to another person where there is a transfer of an economic entity which retains its identity.”

The date on which the transfer occurs is significant, because it will be used in connection with the operation of rights which arise under TUPE, and the applicability of regulation 8(7).

The date of a relevant transfer under TUPE is the date on which responsibility as employer for carrying on the business transferred moves from the transferor to the transferee. That date is a particular point in time, which cannot be postponed to another date at the will of the transferor or transferee (CELTEC Ltd v Astley [2005] ICR 1409 para 44). Ascertaining the date of transfer is a fact sensitive exercise in which all of the circumstances must be taken into account (Housing Maintenance Solutions Ltd v McAteer [2015] ICR 87 para 41; Metropolitan Resources Ltd v Churchill Dulwich Ltd and others [2009] ICR 1380 para 39). Employment of staff and resumption of activities are part of the circumstances, but neither are necessarily determinative of the date of transfer (Housing Maintenancepara 43). The date of completion of a sale may in an appropriate case be the date of transfer (Wheeler v Patel [1987] ICR 631). But the question is one of substance rather than form, taking into account all of the facts, rather than any one factor being determinative.

The legal approach to identifying the date of transfer is consistent with the law governing whether a relevant transfer has taken place or not, in that both require consideration of all of the circumstances (Spijkers v Gebroeders Benedick Abbatoir CV (case 24/84) [1986] 2 CMLR 296 para 15). The factors which bear on both existence and date of transfer may overlap. For example, when considering if there had been a relevant transfer, the Spijkerscase listed factors such as the transfer of assets such as buildings, stock and goodwill, the transfer of employees and customers, and the duration of any interruption in activities (para 13). The dates of those events may also be circumstances bearing on the date of a relevant transfer, but all of the circumstances in a particular case have to be taken into account.

It follows that it would be a misdirection in law to take the date of a conditional business transfer agreement as conclusive of the date of a relevant transfer. The date of a transfer agreement might in an appropriate case be the date of a relevant transfer, but it depends on all of the circumstances of a case. Equally, it would be a misdirection in law to leave the date of any transfer agreement out of account, because it would be one of the factors the tribunal should take into account in determining the date of the relevant transfer.

The tribunal found facts (paras 7 to 44). It found specific facts about the Agreement, including that it was signed on 3 March 2023. The Agreement contained a date of completion of 3 March 2023, and provisions about sale and purchase of the business, including a purchase price for fixed assets, debtors, stock and intellectual property, and transfer of some of the employees, but not others (paras 11 to 13). There was no finding that the business premises or business vehicles transferred under the Agreement. The tribunal also found facts about other matters, including Phoenix initially “walking away” after the Agreement was signed, the appointment of a provisional liquidator on 7 March 2023, correspondence with the provisional liquidator resulting in a fresh agreement involving lower payment terms for business assets, the transfer of vehicles, confirmation on 15 March 2023 that the landlord agreed in principle to a business occupancy of premises by Phoenix, recruitment by Phoenix of employees including former employees of Morton, and recommencement of production by Phoenix on 21 March 2023. The tribunal went on to note the competing submissions of parties, including the Secretary of State’s position that the date of the relevant transfer was 3 March 2023, relying on the cases of CELTEC, Wheeler and Housing Maintenance discussed above. The other parties submitted there had been no relevant transfer or, if there had been, it post-dated the appointment of the provisional liquidator, with the effect that regulation 8(7) of TUPE applied (one submission made was that the transfer date was 3 April 2023 at the earliest, on the basis of dates of employment of staff). A number of authorities were referred to, including Spijkers.

The tribunal’s decision about the date of the transfer appears between paragraphs 159 to 167 of its decision, but it would be artificial to look only at those paragraphs, because the tribunal’s judgment must be read as a whole. After finding facts and summarising submissions, the tribunal correctly identified that it had to determine whether there was a relevant transfer in terms of regulation 3 of TUPE (para 103). It correctly directed itself that in deciding that matter, all facts had to be taken into account and none in isolation, with no single factor being decisive (paras 104, 105, 113). The tribunal considered the factual circumstances of the case and concluded there had been a relevant transfer (paras 115 to 158). In doing so it expressly considered the Agreement and its terms, including finding that it was binding, and there was a contract in place for the sale of the business (paras 115 to 124). But it also considered other factors, such as the type of business, premises, assets including vehicles, employees, customers, similarity of businesses, correspondence, and the duration of interruption in activities, before finding that there had been a relevant transfer (para 159).

When the tribunal turned to the date of the transfer, it noted the Secretary of State’s submission that the date of transfer was 3 March 2023. It noted the cases of CELTEC and Housing Maintenance, and correctly directed itself that it was seeking to ascertain the date upon which responsibility for carrying on the business moved from Morton to Phoenix (para 161). However, the tribunal did not accept there was a transfer of the business at 3 March 2023, despite acknowledging the existence of the Agreement, because it found there was no going concern at the time. It would not have been possible for Phoenix to take over and continue the business on 3 March 2023, with a frozen bank account, all employees laid off, and no premises because of the lack of occupancy rights. The tribunal then went through various other facts and circumstances, which must be seen in the light of the earlier findings in fact relating to whether there had been a relevant transfer. The tribunal found that the relevant transfer took place on 21 March 2023, because by then Phoenix had secured occupancy rights to premises, agreed a revaluation and payment terms for plant and machinery, understood the liquidator would not challenge the transfer, and had taken on employees ready to commence production (para 165). The tribunal acknowledged that the circumstances of this particular case meant there was some difficulty in reaching firm conclusions regarding the date of transfer, but explained it reached its decision having regard to the evidence, the key factual circumstances and the contemporaneous email correspondence (para 167).

The Secretary of State took issue with a number of the factors identified by the tribunal for the business not being a going concern on 3 March 2023, because a temporary bank account could have been opened, staff could be called back, and production had only just ceased. It was submitted that Phoenix contacting the provisional liquidator and the landlord was consistent with Phoenix having assumed responsibility on 3 March 2023. The Secretary of State also correctly pointed out that a temporary cessation of business does not preclude a relevant transfer, and that there can be a transfer at a time no employees are working and no activities are being carried out. But none of these matters demonstrate an error of law. They amount to a disagreement with the weight the tribunal gave to various factors when deciding on the date of transfer. It was for the tribunal to consider all the circumstances, and decide when responsibility for carrying on the business transferred to Phoenix. It is possible that a different tribunal might have reached a different decision on the facts, but the conclusion reached, in light of the governing law, is one that a reasonable tribunal properly directing itself could have arrived at.

The tribunal correctly directed itself as to the law (paras 103-5, 113, 161). There is nothing to indicate that it misapplied the legal principles it identified. It took into account the relevant factor of the Agreement. Its decision was based on careful fact finding and an assessment of all the circumstances, and is not perverse. There are no grounds for the Employment Appeal Tribunal to interfere with the tribunal’s decision as to the date of the transfer.

The Secretary of State argued that, even if the first ground of appeal was not successful, the tribunal erred in finding that regulation 8(7) of TUPE applied. This second ground of appeal turned on the Secretary of State’s position that the date on which an insolvency situation within regulation 8(7) could exist was the date of the winding up order in respect of Morton (31 March 2023), not the date a provisional liquidator was appointed (7 March 2023). On that analysis, because the date of the winding up order post-dated the date of the relevant transfer (21 March 2023 on the tribunal’s findings), the Secretary of State argued that the tribunal had erred in finding the conditions in regulation 8(7) were met. Because regulation 8(7) did not apply, regulations 4 and 7 remained applicable, and the claimants had transferred to Phoenix. Payments were not due from the national insurance fund. The claimants and Phoenix, on the other hand, argued that the conditions of regulation 8(7) were met from the time the provisional liquidator was appointed on 7 March 2023. That pre-dated 21 March 2023, when the relevant transfer occurred. Because regulation 8(7) applied, contracts of employment and liabilities for dismissal rights had not transferred to Phoenix. The claimants should be entitled to claim payments from the national insurance fund.

The decision in this appeal, for reasons set out below, is that the tribunal did not err in law when it found regulation 8(7) of TUPE applied. The argument of the claimants and Phoenix is accepted, that insolvency proceedings meeting the requirements of regulation 8(7) may, in appropriate cases, be instituted when the court appoints a provisional liquidator to a company, rather than only being instituted at the time of a winding up order being made. This outcome differs from views expressed (and relied on by the Secretary of State) in Lightman and Moss on the Law of Administrators and Receivers of Companies, 6^th Ed, 2017, paras 16-108 to 16-109. It is observed that those views were offered prior to the decision in the case of Federatie Nederlandse Vakbeweging v Heiploeg Seafood International BV and another [2023] IRLR 405 (“Seafood International”), and fairly note a number of counter arguments. The outcome also differs from findings by the tribunal in the case of Martynuik and others v Lunar Caravans Ltd ET case 2416830/19 (paras 54-59). However, in that case there was no finding that a winding up petition had been presented, nor that a winding up order had been made, and the Secretary of State accepted that Martynuik turned on its own facts. At its heart, the issue is one of statutory interpretation, and consideration of all of the circumstances of a particular case, as explained below.

Regulations 4 and 7 of TUPE are only disapplied by article 8(7) for relevant transfers:

“where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner”.

The process of statutory interpretation requires the meaning borne by these words, in their particular context, to be ascertained. That involves an objective assessment of the meaning the legislator sought to convey when using those words. Before considering the words of regulation 8(7) themselves, it is helpful to consider an external aid to their construction, the Acquired Rights Directive, because regulation 8 sought to transpose article 5 of the Acquired Rights Directive into UK law, and regulation 8(7) and article 5(1) contain substantially the same wording. This assists with identifying the mischief sought to be addressed by the relevant provisions, and their purpose.

The Acquired Rights Directive was designed to apply to all Member States, even if they had different national laws about bankruptcy (sequestration in Scotland) and insolvency (Abels v Administrative Board[1987] 2 CMLR 406 para [17]). That background helps identify that the wording used in regulation 8(7) of TUPE is deliberately open-textured, because it came from a measure intended to be able to apply to different legal systems, no matter the particular detail of the national laws. The open-textured wording also means that it can be applied across various different bankruptcy and insolvency situations and legal systems in the UK. It points towards an approach not overly based on the detail of a particular legal system’s bankruptcy or insolvency procedures, but a purposive approach involving consideration of what is happening in all of the circumstances. That is consistent with the approach already seen to apply in relation to other issues under TUPE, such as whether there has been a transfer and the date of any transfer (paras 16 and 17 above).

Two contrasting cases in the CJEU illustrate this circumstance and purpose led approach, in the particular context of article 5(1) of the Acquired Rights Directive, upon which regulation 8(7) of TUPE is based. Both cases involved transfers of businesses in situations where there had been planning about a transfer prior to an insolvency. In the first case,Federatie Nederlandse Vakvereniging and others v Smallsteps BV [2017] ICR 1316 (“Smallsteps”), the CJEU found article 5(1) did not apply. The CJEU suggested article 5(1) had to be strictly construed, because it renders the scheme for protection of employees under the Acquired Rights Directive inapplicable in certain situations (para 41). In Smallsteps, a business running childcare centres got into financial difficulties. The management organised a restructuring, involving setting up a new company which took on some of the centres and employees, and the transferee being declared insolvent. Although the court had appointed a prospective insolvency administrator, at the relevant times the appointee had no formal powers, so the process was not “under the supervision” of an insolvency practitioner. Further, the aim was not the liquidation of the assets within the meaning of article 5(1), but essentially a swift relaunch of viable units. The situation was not covered by article 5(1) of the Acquired Rights Directive. By contrast, in the second case, Seafood International, in a similar factual situation, the court found that article 5(1) could in principle apply to situations in which there was planning for a transfer of all or part of an undertaking prior to an insolvency (paras 55 and 66). It was found that in a situation where insolvency is inevitable, and the primary aim is to enable liquidation as a going concern which satisfies to the greatest extent possible the claims of all the creditors, and preserves employment as far as possible, and provided regulatory or statutory provisions govern procedure, article 5(1) may apply (and by extension regulation 8(7)).

Whether or not regulation 8(7) applies to remove a transfer from the protection of regulations 4 and 7 requires consideration of all of the circumstances of a particular case, in the light of the wording and purpose of regulation 8(7). Previous UK cases about regulation 8 of TUPE may provide some guidance in the context of particular bankruptcy or insolvency procedures, but in the absence of authority about a particular situation, it is helpful to bear in mind the purpose of the provisions. The overall purpose of TUPE, from its full name (and consistently with the full title of the Acquired Rights Directive), is to safeguard and protect employee rights in the event of a transfer of a business. In many cases, employee protection will be secured by contracts of employment being transferred to the new owner of the business, so that employment continues on the same terms and conditions (regulation 4 of TUPE), and particular dismissal rights arise (regulation 7 of TUPE). But the Acquired Rights Directive (article 5) and TUPE (regulations 8 and 9) also recognise that bankruptcy or insolvency situations may merit different treatment. Some jobs may be saved if an insolvent business is taken over or survives, which overall is better employee protection than a business being liquidated, disappearing, and all jobs being lost (Abels, paras [21] and [23]). The mischief being addressed is that insolvent businesses are unlikely to be taken over unless they are attractive enough to a buyer, and that may entail not having to take on responsibility for all former employees (regulation 8(7) of TUPE), or being able to alter terms and conditions and the state stepping in to provide certain payments (regulation 8(6) and regulation 9 of TUPE). The purpose of regulation 8(7), seen in this light, is to relieve the transferee of obligations towards a transferor’s employees, in situations in which the transferor is insolvent, in order to facilitate the potential for retention of at least some jobs. To that extent, it remains a measure safeguarding employment, although employees do not have the benefit of all aspects of protection which may arise under TUPE. However, regulation 8(7) will not be available for situations of misuse of insolvency procedures in order to deprive employees of the benefit of rights (Article 5(4) of the Acquired Rights Directive).

Before turning to the meaning of the words used in regulation 8(7) of TUPE, it is convenient to address arguments of both parties about reading across definitions in other UK legislation into regulation 8(7). The Secretary of State relied on a provision in the ERA, but other parties relied on one in the Insolvency Act 1986.

The Secretary of State argued that the date of institution of insolvency proceedings should be ascertained by applying the definition of when an employer has become insolvent in section 182 of the ERA. The result was that relevant proceedings were instituted on 31 March 2023, the date of a winding up order, and after a relevant transfer had happened. Section 182 contains definitions of when an employer has “become insolvent”, and for an employer which is a company this may include:

“if a winding up order has been made, or a resolution for voluntary winding up has been passed, with respect to the company”.

A similar definition appears in section 166 within Part XI of the ERA. Regulations 8(3) and 8(4) of TUPE, part of the protection arising if regulation 8(6) applies, have the effect of applying “relevant statutory schemes”, which are those such as recourse to the national insurance fund under parts XI and XII of the ERA. Section 182 is within part XII of the ERA. On this basis the Secretary of State argued that analogous insolvency proceedings had not been instituted for the purposes of regulation 8(7) of TUPE until the court’s winding up order.

On the other hand, the claimants and Phoenix argued that a definition in section 129 of the Insolvency Act 1986 should be applied to decide when insolvency proceedings within regulation 8(7) have been instituted. Section 129 is headed up “commencement of winding up by the court” and, among other possibilities, section 129(2) provides:

“….the winding up of a company by the court is deemed to commence at the time of the presentation of the petition for winding up”.

The date of presentation of the petition for winding up was 7 March 2023. As that pre-dated the relevant transfer on 21 March 2023, it was submitted that the conditions in regulation 8(7) were met, employees had not transferred under regulation 4, and payments fell to be made from the national insurance fund. The claimants and Phoenix pointed to the reference within regulation 2(1) of TUPE to the Insolvency Act 1986, and in particular its use of Part XIII of that Act to define the words “insolvency practitioner”, used in in both regulation 8(6) and 8(7).

As a generality, absent express incorporation, provisions in one piece of legislation will not be read into a different one (Somerville v Scottish Ministers 2007 UKHL 44 paras 31 and 132). Neither the definition of “become insolvent” in the ERA, nor the definition of “commencement of winding up by the court” in the Insolvency Act 1986, have been expressly incorporated into the TUPE regulations. Given that regulation 2(1) of TUPE incorporated particular meanings specified in other legislative provisions where that was appropriate (for example “recognised” or “insolvency practitioner”), the natural inference from the omission of definitions in sections 166 and 182 of the ERA, or section 129(2) of the Insolvency Act 1986, is that they do not form part of TUPE. The eligibility criteria for payments from the national insurance fund under the ERA, or the commencement of winding up by the court in section 129 of the Insolvency Act 1986, are subject to different legislative regulation from the conditions in regulation 8(7) of TUPE for disapplication of regulations 4 and 7.

That is not to say that the date of presentation of a petition, or indeed the date of the grant of a winding up order, may not be relevant dates in a consideration of whether “analogous insolvency proceedings…have been instituted” (Secretary of State for Trade and Industry v Slater [2008] ICR 54 at para 25, 27-28). Rather, in keeping with the approach to whether there has been a relevant transfer and the date of that transfer, consideration should be given to all of the circumstances to decide whether the transferor was already the subject of bankruptcy or insolvency proceedings under the supervision of an insolvency practitioner, which had been instituted with a view to the liquidation of the transferor, at the time a particular transfer happened.

Before leaving the discussion of other UK legal provisions, it is appropriate to explain why a further argument of the Secretary of State is not accepted. It was argued that the date of institution of proceedings under Regulation 8(7) of TUPE should be taken as the date of winding up, to avoid inconsistency with Part XII of the ERA. In the UK, payments from the national insurance fund to employees in the event of insolvency are subject to their own eligibility criteria, under Chapter VI of Part XI and Part XII of the ERA. There is reference to these schemes in regulation 8(4) of TUPE, but that is in the context of regulation 8(6) modification of the effects of transfers of employees, rather than where regulation 8(7) applies. However, on the wording of the schemes in the ERA, availability of payments from the national insurance fund in the event of insolvency of an employer does not turn on whether regulation 8(6) or 8(7) of TUPE applies. Rather, the availability of payments from the national insurance fund depends on whether the particular criteria set out in the ERA are met. The broad aim of the schemes in the ERA is that employees will not be left without any protection in an insolvency situation.

It is acknowledged that the date a company has “become insolvent” under the ERA might in principle be different from the date that insolvency proceedings under regulation 8(7) are instituted. It does not follow that there is an inconsistency between TUPE and the relevant parts of the ERA. It just means that payments from the national insurance fund will be calculated according to the criteria in the ERA, and the applicability of regulation 8(7) in TUPE will depend on conditions within that regulation being met. In practice, it is difficult to envisage a situation in which the regulation 8(7) criteria are met (having regard to the purposive approach to its interpretation and application already discussed), but a corporate employer does not ultimately become insolvent, giving rise to eligibility for payments from the national insurance fund in appropriate cases. TUPE is not the only employee protection measure which may apply in an insolvency situation.

Regulation 8 is headed up “Insolvency”, indicating it is intended to apply in situations where transferors have become unable to pay their debts. Regulation 8 is essentially in two parts.

The first part of regulation 8 is for insolvency proceedings where there is no view to liquidation of assets; in other words, a procedure has been entered into with a principal objective of rescuing the company, such as administration, even if it does not succeed and there is eventual liquidation. Where there are “insolvency proceedings opened in relation to the transferor not with a view to the liquidation of assets of the transferor and which are under the supervision of an insolvency practitioner” under regulation 8(6), regulations 8(2) to (5) apply. The effect of transfers under TUPE is modified. Although contracts of employment and dismissal rights under regulations 4 and 7 are transferred, the effect is mitigated by the ability to renegotiate terms under regulation 9, and by the transferee not becoming liable for sums payable under the schemes in the ERA referred to in regulation 8(4).

The other part of regulation 8 is regulation 8(7), in issue in the present case. This applies where the insolvency proceedings have been instituted with a view to liquidation. Regulation 8(7) is aimed at a situation in which there is no realistic prospect of the company being saved, and the proceedings are aimed to bring about its demise and realisation of assets for the benefit of creditors. In this more extreme situation, rather than modified protection under the earlier parts of regulation 8, regulations 4 and 7 of TUPE are disapplied. Contracts of employment are not transferred to the transferee. Dismissal rights under regulation 7 do not arise. For the additional protection of transferees in regulation 8(7) to apply, there are various conditions which must be met.

First, the transferor must be the “subject of bankruptcy proceedings or any analogous insolvency proceedings”. As identified above, those words came from an EU measure which was intended to cover insolvency situations in multiple legal systems. The TUPE regulations do not contain a definition of bankruptcy or analogous insolvency proceedings. It is the substance that matters, rather than a particular form of proceedings under domestic law.

Second, under regulation 8(7), bankruptcy or analogous insolvency proceedings must have been “instituted”. That means the same as “commenced”, or “opened” in regulation 8(6) of TUPE (Secretary of State for Trade and Industry v Slater [2008] ICR 54 at para 25). One date to consider will be the date of commencement of the particular UK proceeding being invoked (Slater paras 27-28). However, for reasons already discussed, it is necessary to keep in mind the substance of the rights intended in the light of the purposes of regulation 8(7), not the form of particular domestic proceedings, and reach a decision based on all of the circumstances.

Third, the proceedings must be “with a view to the liquidation of the assets of the transferor”. For regulation 8(7) to apply, the proceedings have to be intended to lead to liquidation of the transferor’s assets. Further, the wording is not just “proceedings…to liquidate” but “proceedings…with a view to” the liquidation of the transferor’s assets. If the proceedings have been instituted with another view in mind, for example an administration aiming to keep a business going, then this condition will not be met, and the situation is more likely to fall within regulation 8(6) of TUPE. This third condition is capable of being used as an anti-avoidance provision, in keeping with article 5(4) of the Acquired Rights Directive and the strict construction of regulation 8(7) suggested in Smallsteps. For example, if the purpose of petitioning in respect of a debt and the appointment of a provisional liquidator is really just about getting a company to pay a debt, or to try to avoid the effect of regulation 4 and secure a situation where a transferee does not have to take on employees, there is no “aim” of liquidating the company’s assets, and the proceedings may not meet this condition.

Fourth, the proceedings must be under the supervision of an insolvency practitioner. Insolvency practitioner is a defined term under regulation 2(1) of TUPE, by reference to Part XIII of the Insolvency Act 1986 (entitled Insolvency Practitioners and their Qualification). Section 388(1) is at the start of Part XIII, and contains this definition:

“a person acts as an insolvency practitioner in relation to a company by acting

(a)

as its liquidator, provisional liquidator, administrator, administrative receiver or monitor, or

(b)

where a voluntary arrangement in relation to the company is proposed or approved under part 1, as nominee or supervisor”.

Of note for present purposes is the inclusion of “provisional liquidator” in the definition of insolvency practitioner used in the TUPE regulations. A provisional liquidator operates under a statutory procedure (section 135 of the Insolvency Act 1986 and the Insolvency (Scotland) (Receivership and Winding up) Rules 2018 (SSI 2018/347)) and has functions that a court may confer on them. In this particular case, the court order of 7 March 2023 conferred certain powers under schedule 4 of the Insolvency Act 1986 on the provisional liquidator. They included powers to bring or defend legal proceedings, and powers to carry on the company’s business, but only so far as necessary for its beneficial winding up.

The tribunal’s decision must be approached with that legal background in mind. The part of the decision of the tribunal directly addressing the applicability of regulation 8(7) of TUPE is relatively short. However, the tribunal identified the correct legal test (para 168). It considered the competing arguments. It then came to the conclusion that the position fell squarely within regulation 8(7); Morton was the subject of insolvency proceedings, which were instituted with a view to the liquidation of the assets of Morton, and were under the supervision of an insolvency practitioner (the provisional liquidator) (para 172).

The tribunal’s decision must be read as a whole, and various other factual findings made by the tribunal are also relevant to whether it erred in law in its approach to regulation 8(7). Phoenix was formed with a view to taking over Morton’s business, as Morton was in a precarious position and its bank account frozen. To be kept going, the business would have to be streamlined, with only some staff and business contracts being taken on (paras 8 to 10). In the Agreement, offers of employment were intended to be made to listed employees, but not to 122 “excluded” employees (para 140). Morton ceased its business on 3 March 2023, by stopping production, and its three large supermarket customers going elsewhere (para 149). A provisional liquidator was appointed on 7 March 2023, and subsequently the same person was appointed interim liquidator on 31 March 2023 (para 16). All 230 employees of Morton were dismissed by reason of redundancy on 7 March 2023 (para 42). The provisional liquidator was actively involved in dealing with Morton’s affairs from the time of appointment, including revaluation of plant and equipment from the amount in the Agreement (para 25), to protect and safeguard assets for the benefit of creditors (para 19). On 15 March 2023 the provisional liquidator indicated that there was no intention to challenge the Agreement if the consideration was revised in areas he specified (para 28). The provisional liquidator was viewed, after a series of correspondence between 14 and 17 March with Phoenix (paras 21 to 33), as making constructive efforts to facilitate the implementation of the Agreement (para 33), although he indicated that he could not reach final agreement about revisions to its terms until appointed interim liquidator (para 32). When Phoenix started up the bakery business, it recruited employees predominantly from Morton (para 34). Staff working for Phoenix had increased from 40 initially to approximately 100 (para 141). Phoenix had not taken on Morton’s contracts to sell bakery items to three large supermarkets, but had built up a new customer base comprising predominantly small local shops (para 143-144). There was no dispute between the parties that the type of insolvency proceeding to which Morton was subject was a compulsory liquidation. The winding up petition had been brought by HMRC due to unpaid debts. Morton was ultimately liquidated.

Turning specifically to the four conditions for the application of regulation 8(7) of TUPE, there was no dispute about the first and fourth conditions being met in the circumstances of this case. Morton was the subject of “bankruptcy or analogous insolvency proceedings”. HMRC as creditor had petitioned for Morton to be wound up by the court under section 167 of the Insolvency Act 1986, the start of compulsory liquidation proceedings. The insolvency proceedings were under the supervision of a person within the definition of insolvency practitioner in regulation 2(1) of TUPE, a Mr Robb, appointed by the court as provisional liquidator on 7 March 2023.

Whether the tribunal erred in law by finding the second and third conditions satisfied is in dispute (whether the insolvency proceedings had been instituted with a view to the liquidation of Morton’s assets). It is true that in some cases appointment of a provisional liquidator may not lead to liquidation, as the Secretary of State pointed out, for example if bringing a petition results in payment of a debt, and the petition being abandoned. But interpreting and applying regulation 8(7) purposively in all the circumstances is likely to result in that type of situation being found not to meet the regulation 8(7) conditions. There is no finding that the petition was brought merely to put pressure on Morton to pay a debt with no intention of proceeding to a liquidation, or brought as part of a plan to manufacture an insolvency situation to try to evade protections in TUPE. On the facts found by the tribunal, the presentation of the petition to the court on 7 March 2023 was the start of an insolvency proceeding at the behest of an unpaid creditor, which led to liquidation of Morton’s assets. The provisional liquidator was appointed by a court order which specifically authorised him to exercise powers in paragraphs 4 and 5 of part II of schedule 4 to the Insolvency Act 1986, including being able to carry on the company’s business only “so far as necessary for its beneficial winding up”. The provisional liquidator was subject to statutory and regulatory provisions in section 135 of the Insolvency Act 1986 and the Insolvency (Scotland) (Receivership and Winding up) Rules 2018 (SSI 2018/347). The transfer took place during the time of the appointment of the provisional liquidator (an insolvency practitioner within the definition of regulation 2 of TUPE), after his active involvement in discussions. The tribunal found as fact that the provisional liquidator’s primary concern was to protect and safeguard the assets for the benefit of the company’s creditors (para 19). All of this is properly seen, given that Morton was subsequently liquidated, as a first step in the liquidation. The assets were being preserved with a view to liquidating them for the benefit of creditors. The tribunal was entitled to find that insolvency proceedings were instituted when the proceedings were brought in court and a provisional liquidator was appointed on 7 March 2023.

The tribunal correctly took an approach of considering all of the circumstances of the case. The factual situation found by it is in line with the mischief sought to be addressed by regulation 8(7). Morton had 230 employees, but ceased trading because it was insolvent, and was eventually wound up. A provisional liquidator was appointed at the instance of a creditor. Various statutory powers had been conferred on him, under which he was acting. In his statutory role he was actively involved in continuing discussions about a transfer to Phoenix, and alterations to pricing in the Agreement. That transfer ultimately happened, with some jobs being saved, because Phoenix was able to continue a bakery business in a modified form, employing 100 people, some of whom were from Morton. The goal of some employee protection in an insolvency situation was met, with a combination of 100 jobs in Phoenix’s business, and the potential for payments from the national insurance fund to those who qualified. The situation is in line with the type of situation found in Seafood International (para 55) capable of meeting the requirements of article 5(1) of the Acquired Rights Directive. Insolvency of Morton was inevitable. A procedure governed by statutory regulations had been invoked, the primary aim of which was to enable liquidation as a going concern which satisfied to the greatest extent possible the claims of all the creditors, and preserved employment as far as possible, and the transfer happened during that procedure.

The tribunal correctly identified the legal test it had to apply. It made findings in fact which supported its conclusion that regulation 8(7) of TUPE applied. The outcome is consistent with the purpose of regulation 8(7), of relieving Phoenix of obligations towards Morton’s employees in particular circumstances of insolvency, in order to facilitate the potential for retention of at least some jobs. There is no discernible error in law in the tribunal’s approach to regulation 8(7). On the second ground of appeal as well as the first, there are no grounds to interfere with the tribunal’s decision. The case must now be remitted to the tribunal to consider further the claims for payments from the national insurance fund brought against the Secretary of State.