Supreme Court decision in R (on the application of Palmer) (Appellant) v Northern Derbyshire Magistrates Court and another (Respondents)

On 14 January 2022 the R3 Technical Team issued a technical alert to members titled ‘The importance of filing a HR1 Form’. The alert was based on the decision in ‘R v North Derbyshire Magistrates Courts and others [2021] EWHC 3013 (Admin)’, which in essence held that Insolvency Practitioners (‘IPs’) can be criminally liable for not notifying the Secretary of State (‘SoS’) about proposed collective redundancies.

The technical alert, which provided a summary of the background to the case, can be found here.

Whilst the tension between insolvency law and employment law remains, the decision of the Supreme Court in this case will at least provide some comfort to IPs, being that an administrator of a company appointed under the Insolvency Act 1986 (‘IA86’) is not an ‘officer’ of the company within the meaning of section 194(3) of the Trade Union and Labour Relations (Consolidation) Act 1992 (‘TULRCA’).

TULRCA

Section 188 of TULRCA deals with the employer duty to consult - requirements to consult beginning at least 30 days before the first of the dismissals takes effect if 20 or more employees are proposed to be made redundant at one establishment, increasing to 45 days if the number of proposed employees to be made redundant is 100 or more.

Section 193 of TULRCA creates an obligation on the part of the employer to notify the SoS of proposed redundancies with the same timings as set out in section 188 of TULRCA and before notice of the dismissals is actually given to the employees concerned

Section 194 of TULRCA makes failure to  notify the SoS of the intended redundancies a criminal offence. If a corporate body has committed an offence "(3)…with the consent or connivance of, or to be attributable to neglect on the part of, any director, manager, secretary or other similar officer of the body corporate, or any person purporting to act in such a capacity, he as well as the body corporate is guilty of the offence and liable to be proceeded against and punished accordingly".

Decision of the Supreme Court

The appellant, Mr Palmer, who was one of three joint administrators of West Coast Capital USC Ltd, appealed the original decision to the Supreme Court, who had to consider whether an administrator was an ‘officer’ within the meaning of s.194(3) of TULRCA.

The Supreme Court made it clear that an administrator of a company appointed under the IA86 is not an ‘officer’ of the company within the meaning of section 194(3) of TULRCA.

The Supreme Court relied on the references to “officers” in the Insolvency Act itself, which are clearly distinct from the role of administrator, the decision of the Court of Appeal in re B Johnson Builders Ltd (1955) 1 Ch 634 that a receiver and manager (now an administrative receiver) is not an officer, and the wording chosen by Parliament for s194 TULCRA itself. Previous decisions in the Chancery Division that had allowed administrators and liquidators to look to the Companies Act as officers to seek relief from potential civil liability (now s1157 CA 2006) were wrongly decided.

As a consequence, an administrator cannot be held criminally liable where an employer commits the offence of failing to notify the SoS of large scale proposed redundancies within the specified time limits (or at all).

HOWEVER, whilst the decision provides some comfort to IPs, it does not mean administrators can choose to ignore the requirements under TULRCA in respect of notifications (ie the HR1 Form) whilst the company is in administration. The employer still has an obligation to notify, but the administrators will not be at personal risk of criminal liability under s194 of TULRCA

Whilst a prospective administrator has no standing to submit Form HR1 on behalf of a company until appointed, at any pre-appointment stage of the IP’s involvement, it is advisable to enquire of the directors whether they have considered the possible need to submit an HR1 and to point them towards legal advice as appropriate.

Following appointment an IP/administrator should assess whether redundancies are likely to occur. Form HR1 should be submitted immediately where 20 or more employees are proposed to be made redundant at one establishment.  If the directors had already submitted Form HR1, IPs should check the information on the form remains correct and submit a further form if necessary.

Supreme Court judgment – Link