Tag Archives: administration

TUPE Regulations when a Company is in Administration

25 Jun

The vexed question of TUPE and Companies in Administration

Paul McConville’s fantastic posts on the Rangers saga from the scotslawthoughts website can be viewed here. One of the more puzzling aspects of this entire story are the TUPE regulations and how they affect the Rangers players that want to leave oldco instead of transferring to Sevco.

Normally when a company purchases another company, TUPE regulations affect the employees to ensure the same contractual rights are established for employees moving from one company to another. If I am employed on 50K a year at Company A, then under TUPE when Company B buys Company A, I am generally speaking, ensured two things – a) my job, b) the same salary and other contractual rights.

For example, if I chose to stay on at Company B I would automatically transfer to the new company. There is no doubt about this.

However, Rangers situation is a bit different. It is in administration, each day closer to liquidation. Administration can be referred to sometimes as a Non-terminal proceeding. These are treated differently than other insolvency procedures. If the liquidators were selling my company to a new purchaser, my rights has an employee, if I choose, automatically transfer to the purchasing company.

In either scenario, I can “object” or “resign“. These words used in this context have specific legal meanings.  If I didn’t want to transfer, I can”object” to my transfer. My employment would be terminated without consequence, but I would not able to cash in on any rights or statutory protections.  It not treated as a dismissal in the sense of what you and I would call a normal dismissal, but there would never be any compensation.

Resigning is different from objecting. It may be in my interest to resign if there has been major and substantial changes to my contract terms at the purchasing company. I am able to claim statutory protections arguing unfair dismissal.

The Rangers story is a little different though. Rangers are still in administration, not liquidation. Yet. What happens when a company goes into administration? The company’s affairs are handed over to administrators. They run the day-to-day affairs of the business.  However, when a company goes into liquidation, liquidators sells a business or the assets or both.  In this scenario, neither the liquidator nor the purchaser need worry about employees transferring under TUPE because reg.8(7) dis-applies the relevant parts of the Regulations.

The contentious issue is whether or not a business sold by an administrator is also exempt in the same way. Existing case law had previously suggested that were the ultimate objective of the administrator to liquidate the business following a brief period of trading, TUPE would not apply because the administration was “analogous” to insolvency proceedings (Oakland v Wellswood (Yorkshire) Ltd). This has now been refuted by the Court of Appeal in Key2Law (Paul McConville writes extensively about this in his blog),which ruled that reg.8(7) of TUPE does apply in administration; therefore, employees will be transferred to the purchaser under TUPE when the seller is in administration if they choose to go.

In the present fiasco that is known as the Rangers Football Club, the first practical implication for Charles Green’s Sevco is this – The newco purchased the assets and business of RFC from the administrators, Duff & Phelps. Therefore, he should have been able to expect any employees that chose to move over to come with their terms and conditions of employment protected under TUPE. This point does not seem to be arguable. Therefore, players would have had the right to be consulted prior to the transfer and if this did not take place (this is the point that appears to be argued over) they will be able to claim protective awards after the fact. At least the position is certain, for the time being. It doesn’t in any way suggest that the players MUST go over.  They can either object or resign.

In the real world the problem is that purchases from administrators are often “shotgun fashion“, with the administrator anxious to achieve a quick sale and the purchaser just as eager to pick up a cheap asset.  In this case Charles Green picking up the players on the cheap. Normally when there is a slow process of sales, the purchaser and seller has time to undertake the usual TUPE consultations.

When Mr Green tried to do is pull a fast one on his players. When he says, “The transfer of contracts has already happened and the club’s clear legal advice is that players’ purported objection is ineffective. Rangers would like to make it abundantly clear to players, agents and the chairmen and managers of other football clubs that we will take whatever steps necessary to challenge what we regard as a breach of contract to protect the interests of our club.”

Yet in reality in a business sense, administrators are often “trigger happy” when it comes to dismissals. This is the purpose of TUPE. After all the objective of administrators is to shed liabilities and to sell any assets or business as quickly as possible, so the scope for claims of unfair dismissal for reasons connected with the transfer, and protective awards, is hugely enhanced. When a purchaser buys assets from administrators, the risk is very high and now even more so as a result administrators of the Key2Law decision as the previous “escape route” provided by Oakland is no longer available.

Thus with Rangers, the issues around transfer of players seems to revolve around whether or not D&P has sufficient time to consult all employees under TUPE. Short of going through the full and proper TUPE consultations, there is no remedy for this. The result is increased protection for employees and discouragement to buyers who will now be less willing to purchase assets from a company in administration.

For a business, the focus must be on carrying out the usual full TUPE consultations (if possible) when purchasing from an administrator. Outside of this Charles Green will have very little protection against what TUPE protects – the employee, unless it is possible for him to argue that TUPE does not apply on some other ground. He would have to successfully argue, that no actual undertaking has been transferred – obviously this is a fact sensitive defence and depends on analysis of what has actually transferred to Sevco Additionally, any redundancies for a reason connected with the transfer might also be justifiable if it can be shown they were made on economic, technical or organisational grounds entailing changes in the workforce. Not what Green is seeking to argue here at all.

Green could also look for indemnities from the administrator, but if Old Rangers are going into into liquidation, there will be no-one to enforce the indemnities against, so they will not be worth much.  The only other “protection” is to ensure that the assets are purchased as cheaply as possible so as to factor in the potential cost of any TUPE claims.

Following Key2Law and the recent decision in Spaceright Europe Limited v Baillavoine (that dismissals can be in connection with the transfer even where no prospective transferor has been identified), the Court of Appeal has confirmed that a dismissal can be automatically unfair under TUPE even if  the transfer itself is not in contemplation at the time that the dismissal is effected. In this case the administrators, who intended to sell the business as a going concern, dismissed a number of employees including the claimant. The business was subsequently purchased by Spaceright Europe Limited. The Court of Appeal found that the claimant’s dismissal was automatically unfair because he had been dismissed for “a reason connected with the transfer” and so was automatically unfair. The fact that the dismissal took place in order to achieve a sale at a future date was sufficient.

We can see that these cases deal with the rights of the employee to maintain their careers when the assets of the company are sold from administrators to a newco. These have nothing to do with the forced transfer of an employee to move over to a newco to whom an administrator has sold the assets. It only guarantees their contract if they choose to go over to the purchasing company.

What I dont see eye to eye with Mr McConville over is whether TUPE applies at all to employees that choose to move.  I would argue that players under contracts that choose not to go to a new company dont need to rely on TUPE for protection. Furthermore, there are statutory obligations that must occur when transferring employees.

The employee notification process is relatively simple. Under the Employment Act 2002 (Dispute Resolution) Regulations 2004 the transferor employer must provide the new employer with a specified set of information which will assist him to understand the rights, duties and obligations in relation to those employees who will be transferred. This is to ensure the arrival of the transferred employees is a smooth transition and the employees also gain because their new employer is made aware of his inherited obligations towards them. The information in question is:

– the identity of the employees who will transfer; – the age of those employees;

– information contained in the ‘statements of employment particulars’ for those employees;

– information relating to any collective agreements which apply to those employees;

– instances of any disciplinary action within the preceding two years taken by the transferor in respect of those employees in circumstances where the statutory dispute resolution procedures apply or from 6 April 2009 the ACAS Code of Practice on disciplinary and grievance procedures;

– instances of any grievances raised by those employees within the preceding two years in circumstances where the statutory dispute resolution procedures apply or from 6 April 2009 the Acas Code of Practice on disciplinary and grievance procedures; and

The information must be provided in writing or in other forms which are accessible to the new employer.

Mr Green should release this letter from D&P.

The Regulations place a duty on both the transferor employer and new employer to inform and consult representatives of their employees who may be affected by the transfer or measures taken in connection with the transfer. Those affected employees might include:

(a) those individuals who are to be transferred;

(b) their colleagues in the transferor employer who will not transfer but whose jobs might be affected by the transfer; or

(c) their new colleagues in employment with the new employer whose jobs might be affected by the transfer.

Long enough before a relevant transfer to enable the employer to consult with the employees’ representatives, the employer must inform the representatives:

• that the transfer is going to take place, approximately when, and why;

• the legal, economic and social implications of the transfer for the affected employees;

• whether the employer envisages taking any action (reorganisation for example) in connection with the transfer which will affect the employees, and if so, what action is envisaged;

• where the previous employer is required to give the information, he or she must disclose whether the prospective new employer envisages carrying out any action which will affect the employees, and if so, what. The new employer must give the previous employer the necessary information so that the previous employer is able to meet this requirement.

Mr Green should release the details of this notification to the players, and if the player is in the union, then their player representatives

When Mr Green has tried to do is pull a fast one. When he says, “The transfer of contracts has already happened and the club’s clear legal advice is that players’ purported objection is ineffective. Rangers would like to make it abundantly clear to players, agents and the chairmen and managers of other football clubs that we will take whatever steps necessary to challenge what we regard as a breach of contract to protect the interests of our club, ” he is saying he transferred the players over to a newco without notifying the players or the agents. As a Newco is, well,  a “newco”, then the players can choose to leave, and Sevco is without any legal authority to sue the players, the agents, or other clubs for remuneration. Those that do transfer over without notification may have a case against Green and Sevco if their contracts aren’t automatically honoured under the original terms for unfair dismissal.

In my humble opinion.

Web3dLaw

A Fire Sale in Glasgow

27 Mar

Anyone in earshot of a sports radio program in Glasgow, or in eye-shot of a sports section in a Scottish paper could not escape the news that several conditional bids have been made for Rangers Football Club. Most likely the conditions that had to be satisfied involved the ongoing dispute with Ticketus which arose after current club owner Craig Whyte sold off 4 years worth of season ticket books in turn for £20M in which he used to clear off the debt owed to Lloyds TSB by Rangers Football Club. Another condition would likely involve the “big tax case” which may put Rangers further liabilities anywhere in excess of £24Million all the way up to £75M.

Craig Whyte’s Rangers Group is a secured creditor and owns a floating charge over the entire club. We are now in a situation where the administrators are legally trying to solicit open parties to purchase Rangers, without any legal authority to do so. The administrators are not legally empowered to sell the club under the Insolvency Act 1986, in fact, there is no legal precedent at all for a owner of shares to have a “forced sell” of those shares by an administrator in an Insolvency event.

Enter the Enterprise Act 2002. Why Rangers should have been put into a pre-pack administration.

pre pack administration sale is a powerful, legal way of selling the business on to a third party, a “newco” or to the existing directors if the business is facing serious problems and creditor threats.The main advantages of prepack administrations is continuity of the “business” and when the plan is ready and a contract of purchase is drawn up, the company is quickly protected by the Court while the administrator sells the “business and assets” (not the actual company) to the new owners. In Ranger’s case, it looks like Murray Park, Ibrox, and the Players along with any other assets could all be passed on to the “newco”. This gets rid of all of the old RFC debts, unwanted or onerous contracts, (possible Healy, Papac, McCulloch), and employees. There needs be no interruption to the business which in itself can destroy value. 

An advantage is that the cost of the process is lower as the administrators do not need to find funding to trade the business. The process, once the preliminary marketing, valuation work and discussions with creditors can be done in a couple of days if necessary.

If the business is to be sold to a connected party, ie the former directors (Paul Murray, et al), they will need to be able to fund the acquisition of the assets. However, the assets will need to be independently valued. Rangers’ own accounts value MP, Ibrox, and the Car Parks at over £100 million, extremely excessive if you ask my opinion!

The Enterprise Act 2002 allows an administrator to be appointed under Paragraph 68 of Schedule B1 of IA 1986. This allows the administrator to enter into an immediate sale of any of the company’s assets without any involvement of the creditors, like HMRC.

To see how this works in the real world, then we need to look at the case of DKLL Solcitiors v HMRC from 2007. DKLL’s liabilities totalled about £2.4M. About £1.7M of this was due to HMRC, a similar percentage of what is outstanding to HMRC and other creditors at RFC. HMRC was DKLL’s major creditor. HMRC had made a winding up order against DKLL and on the day before the hearing, an application for administration was made by two equity partners of DKLL for the purpose of enabling the proposed administrators to effect a pre-pack sale of DKLL’s business to a newly incorporated limited liability partnership for £400,000.

The court endorsed the use of a pre-pack on the following grounds:

  • In cases such as this it is appropriate that the court ‘places great reliance on the expertise and experience of impartial insolvency practitioners’ and the evidence presented to the court by such experts to determine whether the administration order was reasonably likely to achieve the purpose of the administration. No evidence had been produced by HMRC to suggest that the business could be sold for more than the price that would be achieved in the administration.
  • In relation to HMRC’s opposition to a pre-pack sale in administration, even a majority creditor did not have a veto on the implementation of the administrators’ proposals. The court can authorise the implementation of the administrators’ proposals, notwithstanding the opposition of the majority creditor or, indeed, any other creditors. Accordingly, HMRC’s opposition did not make it ‘reasonably likely’ that the objective of achieving a better result for creditors in an administration than in a winding up would not be achieved.
  • In exercising its discretion as to whether to make an administration order, the court ought to take HMRC’s opposition into account. But it should also consider the interests of the other stakeholders, and the proposed sale appeared to be the only way of saving the jobs of the 50 or so employees of the partnership. It was also likely to result in the affairs of the partnership’s clients being properly dealt and with the minimum of disruption to those clients.

The decision in DKLL also showed that the court accepted that in light of two other cases, Re T & D and Transbus, the administrators had power to complete the proposed sale without the sanction of a creditors’ meeting or a direction of the court. Therefore, pre-packs are not limited to administrators appointed out of court.

In Re T & D Industries [2000], the court held that administrators have the power to sell the whole of the assets and business of the company in advance of convening a creditors’ meeting, and without the need to go to the court for directions. The legislation on this point remains the same under the post-EA 2002 regime.

The courts have recognised that a pre-pack deal is a legitimate restructuring tool in appropriate circumstances and, in a series of cases, have confirmed that administrators have the power to sell a company’s business and/or assets without the prior approval of the court or creditors if the circumstances justify it.

However, it wouldn’t have been easy sailing for Rangers Football Club. The Insolvency Act (IA)1986, in particular s216 – restricts re-use of company names. If Rangers had gone down this route, they would have had to become something other than Rangers Football Club, Ltd. Section 216 is aimed at directors who take part in the promotion, formation or management of ‘phoenix’ companies (whether as a director or not) following an insolvency sale and breach of its provisions will, if convicted, lead to imprisonment or a fine. As well as this criminal sanction, s217 imposes personal liability for the company’s debts on those involved in the management of a ‘phoenix’ company in contravention of s216. Paul Murray better keep a retainer with legal counsel.

Secondly, this creates a whole slew of problems as far as UEFA, the SPL, the SFA, and as far as licensing goes.(Maybe the St Mirren story has something to do with this?) I had better leave that to someone else or try and tackle it at a later date. But Rangers would likely escape of its major creditor obligations. It would also not be Rangers any more. Its history would end. The “newco” would start in 2012. Maybe we will be seeing Govan Bears 2012, after all?  This begs the question as to why Sir David Murray didn’t go down this route instead of selling to Craig Whyte in the first place. 

So if pre-pack is no longer an option, then what options does that leave Duff and Phelps? A fire sale of the assets to new owner? Most likely.

A mea culpa (of sorts) from Duff and Phelps, the Rangers administrators.

19 Mar

I am often asked my opinion on the “situation” at Rangers Football Club. I am often asked on the basis that a) I do not like Rangers (I grew up supporting DAFC, and although my extended family all supported RFC, I despised them out of spite)  and b) I am a student of the law and have a keen thing in all things Legal in Scotland.  Unfortuntely, the Scottish media has not been particularly up-front about what is really going on at Rangers. Several internet bloggers have made attempts to clarify what exactly is going on at RFC, including @grahamspiers, @pmacgiollabhan, and @rangerstaxcase) All have written extensively on the subject, and I would not begin to steal the varied and impressive work they have done so far. This blog is an attempt to make it all relatively clear to the layman. Ill try and keep it simple.

The situation is worse than the club and the administrators are letting on.

It has been widely reported that current owner and corporate takeover specialist Craig Whyte has used the money he received from the sale of season ticket books rom Ticketus to fund the takeover of the Glasgow Rangers Football Club.

To be clear, the deal can be broken down like this, in the simplest of terms.

Football financing company Ticketus physically bought 3 years of Rangers physical season ticket books from the club for a whopping £24Million. (of which £20 million was for the books, and £4million was VAT). This means the company literally owns 3 years of season tickets books. For the privilege Ticketus paid handsomely into an account, presumably into an account at Collyer Bristow, a London law firm. The deal operated like this:

Rangers gets cash in advance. When a supporter wants to purchase a season ticket book, they phone Ticketus ( or a subsidiary) and the books arrive in the post. Private estimations puts Ticketus profit on the deal to be within £30-40M.

By all accounts, Craig Whyte took this statement of  account at Collyer Bristow and showed it to Sir David Murray to prove his funds were there to facilitate the purchase of the club.

The deal likely took place as follows, “I’ll (DM) sell you the club for a £1 and you (CW) must pay off the club debt”.  The club debt was in the region of £18M and was owed to Lloyds TSB.

This seems simple enough. Except this isn’t a simple deal.

Craig Whyte  formed a company called Wavetower. Shortly afterwards, he changed the name of Wavetower to Rangers Group. The paperwork confirming this is here and here. The directors are Craig Whyte and property developer Andrew Ellis, who sit on the board of Rangers Football Club (more on this later).

It is my belief that Ticketus paid the £24 Million into the account of Wavetower/Rangers Group at Collyer Bristow. After the paperwork was signed, Rangers Group Ltd, (NOT Rangers Football Club Ltd) paid off the  £18M debt owed to Lloyds TSB.

In turn, Lloyds TSB assigned a security over the club to Rangers Group (not Rangers Football Club Ltd).

What this means is that Rangers Football Club owes £18M plus interest to Rangers Group. RFC never paid off the debt to Lloyds TSB. Rangers Group did. Afterwards, Lloyds assigned the security over RFC to Rangers Group.  Craig Whyte and Rangers Group own a floating charge over Rangers Football Club. Therefore, Craig Whyte is a secured creditor over Rangers Football Club. Rangers (Football Club) owe an additional £18M to Rangers Group (Craig Whyte).

And Duff and Phelps make a very subtle admission of this fact in a court document that was filed last week. (This was widely reported in the press as Rangers was not technically in administration)

Check out Note 3 of the Document filed in the Court of Session last week. (Available Here)

It reads as follows:

“otherwise dispenses with any further intimation, service or advertisement of this petition… blah blah blah…and the Rangers Group Limited as a holder of a qualifying floating charge”.

Duff & Phelps have stuck in to this document very quietly, what everyone including CW have always believed or suspected. Rangers Group have a floating charge over Rangers Football Club, Ltd.  So in addition to the £9M in PAYE owed, the £4M in VAT they owe on the Ticketus deal, the “small tax case” of £3-4M  and the “big tax case”, of up to £75M which has not yet been decided by the First Tier Tribunal, Rangers Football Club possibly owe Craig Whyte’s Rangers Group £18 million.

Watch this space…