The Supreme Court has handed down a judgment which will be greeted with a collective sigh of relief from the insolvency world. In R (on the application of Palmer) v Northern Derbyshire Magistrates Court [2023] UKSC 38, the Supreme Court ruled that an administrator of a company is not an “officer” of that company.
As a result of this confirmation, it is now clear that an administrator cannot be held criminally liable for a failure to comply with the statutory redundancy notification obligation set out in section 193 of the Trade Union and Labour Relations (Consolidation) Act 1992.
When an administrator is appointed, it is very often the case that redundancies are likely. And if that likelihood becomes a ‘proposal’ to make 20 or more redundancies within a 90 day period, this triggers two separate obligations:
- An obligation to consult with employee representatives (a minimum of 30 days’ consultation if 20-99 redundancies are proposed, increasing to 45 days if 100 or more redundancies are proposed). If the company does not comply with the consultation obligation, this can result in costly protective awards being made against the company (of up to 90 days’ actual pay per employee).
- An obligation to give the Redundancy Payments Service (RPS) advance warning of the proposed redundancies using a prescribed form, known as an HR1 form. The same timeframes/thresholds apply to this notification. If the company does not comply with the obligation to file the HR1 form, this can result in summary conviction in respect of which an unlimited fine.
While the Supreme Court has now made it clear that any such criminal liability does not extend to an administrator personally, an administrator would be well advised to continue to file the HR1 form as soon as there is a proposal to make redundancies:
- The obligation still applies to the company and could result in an unlimited fine.
- An administrator will be mindful of their continuing relationship with the RPS (and how the RPS might view any failure to file HR1 forms).
- If the obligation to file the HR1 form is not complied with, and protective award claims are later brought in the Employment Tribunal, the Tribunal will become aware of this non-compliance. This may then colour the Tribunal’s view of how seriously the company takes its obligations, which will be unhelpful to the company in administration as it seeks to defend the protective award claims.
When interacting with the directors of the company (as they consider whether and when to place the company into administration), the administrator will wish to remind those directors (to whom such criminal liability can extend in the run up to the administration) that they should confirm on a daily basis whether the obligation to file an HR1 form has been triggered.
While the decision itself is good news for administrators, you can’t have your cake and eat it. As well as holding that administrators are not “officers” of the company, the Supreme Court overturned some previous authority which was helpful to administrators (including In re Powertrain Ltd [2015] EWHC 3998 (Ch), which held that administrators and liquidators were officers of a company for the purposes of section 1157 of the Companies Act 2006). Section 1157 allows the court, in proceedings for negligence, default or breach of duty of a director or other officer, to grant relief from liability (if certain conditions are met). This section (and therefore relief from liability) is now no longer available to administrators.
