UK Supreme Court clarifies administrators’ liability in redundancy situations: implications of the Palmer ruling

Friday 10th November, 2023

In the recent Supreme Court case of R (Palmer) v Northern Derbyshire Magistrates Court, the court has clarified that administrators should not be considered as ‘officers’ of the company under the Trade Union and Labour Relations (Consolidation) Act 1992.

This ruling provides some reassurance for administrators as it exempts them from potential criminal liability in cases of failure to notify the Secretary of State of more than 20 redundancies.

The Facts

Mr Palmer was appointed as one of the three joint administrators of West Coast Capital (USC) Ltd (the “Company”) on 13 January 2015. On 14 January, 84 employees were handed a letter, signed by Mr Palmer, informing them that the Company would be holding redundancy consultations with them at a staff meeting. Later that day they were handed a second letter, also signed by Mr Palmer, dismissing them with immediate effect.

It is a requirement under sections 193(1) and (2) of TULRCA that, where an employer proposes to make at least 20 employees redundant within 90 days, the employer must give notice of this proposal to the Secretary of State at least 30 days before those dismissals take effect. Where a company fails to give this notice because of a ‘director, manager, secretary or other similar officer’ of the company consenting to, conniving in, or negligently failing to prevent that company’s failure to give notice, that individual commits a criminal offence under section 194(3).

Notice of the redundancies was not given by the Company to the Secretary of State until the relevant form, signed by Mr Palmer, was emailed on 4 February 2015.

Criminal proceedings were subsequently brought against Mr Palmer under section 194(3). Mr Palmer argued that an administrator appointed under Part II of the IA 1986 is not an ‘officer’ for the purposes of TULRCA and, consequently, he had not committed the section 194(3) offence. The District Judge at first instance held that Mr Palmer was an ‘officer’ of the Company. Mr Palmer’s application for judicial review of the decision was subsequently rejected by the Divisional Court and he then appealed to the Supreme Court.

The Decision

The Supreme Court unanimously allowed Mr Palmer’s appeal. Quashing the first instance decision, the Court held that an administrator is not an ‘officer’ of a company for the purposes of TULRCA.

In coming to this decision, Lord Richards remarked that in the absence of any definition of ‘officer’ in TULRCA and any clear statement of authority which can be taken as a definition of what is generally understood to be an officer, the first recourse must be to the IA 1986, the statute governing the process of administration and the role and responsibilities of an administrator.

Lord Richards stated that none of the many references to ‘officer’ in the IA 1986 suggests that an administrator is an officer and some references, such as in the misfeasance provision (in section 212), demonstrate the contrary position that an administrator is not to be considered to be an officer of a company.

The Court concluded that whether a person is an ‘officer’ of a company in the context of provisions such as section 194 of TULRCA is to be determined by asking whether that person holds an office within the constitutional structure of the company. Lord Richards remarked that this is the normal meaning of ‘officer’ and this is emphasised by the prior reference to ‘directors, managers and secretaries’ in section 194(3), all of which are officers in the conventional sense, together with the words ‘other similar’ before ‘officers’ (meaning those who carry out the functions of directors, managers and secretaries for the company but who may not be labelled as such).

What does this mean for IPs?

Redundancies in administrations are far from unusual and a typically unfortunate by-product of corporate failure. It is not uncommon for potential redundancies not to have been effected at the point of administration – there may be hope that administration can be avoided or that a going concern business sale might be able to be transacted, particularly as a pre-pack, where a rush to make redundancies might be unhelpful such that no decision has been made as of the date of the administrator’s appointment. The pressure on an administrator to make their own determination on appointment will be intense to avoid adopting any unnecessary employment contracts and triggering any consequential paragraph 99(5) [i]administration expense claims which cannot be justified.

Consequently, this judgment in Palmer is helpful and what IPs would no doubt be hoping for. It provides  definitive clarity from the most senior court in England and Wales as to the distinction between a company’s pre-administration directors (and perhaps other management team) and an administrator who might be appointed to it for the purposes of section 194(3). As such, it offers some welcome peace of mind for administrators around the duty to consult.

Our view, though, is that practitioners should exercise a degree of caution around the decision and look to observe the legal requirements under TULRCA so far as this is practicable in every case. It is also a decision on just one narrow provision in that statute. Prudent practitioners will want to act as compliantly as possible with all prevailing rules and regulations.

Although not stated in the judgment, it can presumably be assumed by extension that the principle established in Palmer will apply likewise in any liquidation where there are still employees employed on the date of the commencement of the liquidation who are subsequently made redundant by the liquidator.

There is also an interesting follow-on question. This is whether the rationale stated in Palmer for the purposes of section 194(3) of TULRCA might be something which could apply equally for the purposes of other legislation where there is thought to be a risk that an IP could be considered to have potential liability as if they were, or were acting as, an “officer” (or occupying some other form of responsible executive, management or other senior position in a company) for the purposes of such legislation. No form of authoritative comment can be made on this and this question must remain open, not least because each statute must be assessed in its own right (and in light of all applicable caselaw and other relevant jurisprudence).

The full judgment of the Palmer case can be found here.

[i] Paragraph 99(5) of Schedule B1 to the Insolvency Act 1986. The relevant administration expense claims would comprise wages and salary, holiday pay, sick pay, pay in lien of holiday and contributions to occupational pensions schemes.

Articles by Brett Israel