In a judgment that will be welcomed by insolvency professionals, the Supreme Court has today confirmed that administrators cannot be personally criminally liable for failing to notify the Secretary of State about plans for collective redundancies.   This judgment follows an appeal by Robert Palmer against a finding that he was criminally liable for his failure to submit form HR1 in his capacity as the joint administrator of West Coast Capital (USC) Limited (USC)

What is the obligation?

When proposing to make 20 or more redundancies within a 90 day period, a company must notify the Secretary of State of its intention to make those redundancies before giving notice to employees and at least 30 days before those dismissals take effect. Where 100 or more redundancies are proposed, that period extends to 45 days.  That obligation is usually referred to by reference to the form used for that notification, the HR1. 

Section 194 of the Trade Union and Labour Relations (Consolidation) Act 1993 (TULRCA) sets out that where a company fails to submit that HR1 within that time period, it commits a criminal offence.  Where that offence is committed with the consent of a “director, manager, secretary or other similar officer of the company”, or where that failure is attributable to their neglect, that individual is also guilty of the offence.

That obligation under employment law frequently gave rise to a conflict with administrators’ statutory duties to act in the best interest of creditors as a whole.  In many cases administrators would determine that those interests were best served by making immediate redundancies without delaying for collective redundancy consultation or the HR1.  Historically prosecutions had been rare but recent actions in relation to City Link and USC had heightened risks for insolvency practitioners.

The USC prosecution

Mr Palmer was appointed as one of three joint administrators of USC on 13 January 2015. On 14 January 2015, employees of USC were handed a letter, signed by Mr Palmer, stating that they were at risk of redundancy. Later the same day, they were handed a further letter, also signed by Mr Palmer, dismissing them with effect from that day. Mr Palmer submitted the HR1 on 4 February 2015. 

In July 2015, criminal proceedings were commenced against Mr Palmer, alleging that he had committed the offence in section 194 of TULRCA. Mr Palmer argued that an administrator is not an “officer” within section 194(3) of TULRCA, and therefore could not be personally liable. The Magistrates Court held that Mr Palmer was such an “officer” and an application for judicial review was dismissed by the Divisional Court. Mr Palmer then appealed to the Supreme Court

The Supreme Court’s judgment

The Supreme Court has determined that administrators are not “officers” of the company for the purposes of section 194 of TULRCA.  The judgment itself turned on the Court’s interpretation of the relevant statutory provisions within TULRCA, and further details of those considerations are in the judgment or the helpful press summary.  However, the key point for insolvency professionals is that an administrator cannot be personally liable where a company has failed to comply with its obligation to file an HR1.

The Supreme Court’s finding is welcome news for administrators balancing their obligations to employees with their statutory duties to creditors as a whole – often in very time-pressured and rapidly evolving situations. 

It should be emphasised that this judgment does not in any way limit administrators’ ability to act as agents for the company in administration, including for the purposes of making employees redundant.  Administrators should still seek to ensure the company’s compliance with employment law obligations as far as possible in the context of their wider duties.

For further details of what this decision means for you, please contact James Green or your usual Burges Salmon contact.