iStock_000073840011_MediumThe suitability of the collective consultation regime under the Trade Union and Labour Relation (Consolidation) Act 1992 (“TULRCA”) in an insolvency scenario has always been a hot topic amongst insolvency professionals. The recent case of West Coast Capital (USC) Limited (“USC”) provides a stark example of the hard-line approach the Secretary of State for Business Innovation and Skills (“BIS”) is taking towards infringements of such legislation by insolvency practitioners (“IPs”) and demonstrates the conflicts which often arise between employment law and the rescue culture.

The Law

Under section 193 of TULRCA, employers are obliged to notify BIS where the redundancy of 20 or more employees at one establishment is proposed within a 90-day period. The notice required depends on the number of proposed dismissals:

  • 20-99 redundancies: at least 30 days before the first dismissal.
  • 100 or more redundancies: at least 45 days before the first dismissal.

Failure to provide the notification to BIS on Form HR1 is a criminal offence under section 194(1) of TULRCA and the employer can be liable to pay an unlimited fine.

Where such an offence committed by a company is proved to be 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 any such capacity‘, that person also is guilty of the offence and liable to a fine.

These provisions apply equally to IPs but USC is one of the first reported cases of an administrator being prosecuted under this section.


In USC, both the company’s administrator and director were charged with failing to notify BIS ahead of making redundancies at USC’s Scottish warehouse. BIS asserted that they consented to, connived at or neglected to prevent the failure by USC to comply with TULRCA in failing to notify the secretary of state at least 30 days before the first dismissal took place.

Are there any defences?

Section 193(7) of TULRCA provides for a ‘special circumstances’ defence i.e. ‘If in any case there are special circumstances rendering it not reasonably practicable for the employer to comply with any of the requirements of subsections (1) to (6) [of section 193], he shall take all such steps towards compliance with that requirement as are reasonably practicable in the circumstances.

The cases of Clarks of Hove v Bakers Union [1978] IRLR 366 (“Clarks”) and GMB v Rankin & Harrison [1992] IRLR 514 (“GMB”) considered what could comprise special circumstances in the context of the collective consultation requirements under TULRCA but made it clear that insolvency is not of itself a special circumstance. It may be that future cases under section 193 of TULRCA will follow suit on the construction of what are special circumstances for the purposes of that section.

In Clarks, the Court of Appeal stated that whether circumstances are “special” will depend on the cause of the insolvency and a company’s sudden failure necessitating the immediate closure of the business may be such a circumstance. Conversely, a tribunal would be less likely to conclude that special circumstances exist if a business were wound down over a period of time.

Whilst insolvency is not itself a special circumstance, the decision in AEI Cables Ltd v GMB and others UKEAT/0375/12 suggests that tribunals should take into account the impact of insolvency on a company’s ability to consult for the prescribed minimum period.

The need for clarity

Phillip Sykes, president of R3, has recently commented that “The insolvency profession has long called for clarity from government on what should and should not happen when business failure puts jobs at risk” and that “uncertainty over how the rules are applied – and what sanctions there might be for not adhering to the rules – helps no one, least of all the employees whose jobs are at risk.”

In recognition of the need for reform, in March 2015 BIS made a Call for Evidence on Collective Redundancy Consultation for Employers Facing Insolvency which closed in June this year (the “Call for Evidence”).

The Call for Evidence has given IPs the opportunity to comment on how the process of consultation and notification can be improved to incentivise those in charge of companies to engage in a proper process in the context of the difficulties they are facing. Hopefully, the Call for Evidence will result in a more balanced approach as to how IPs should deal with redundancy situations when instructed on a failing company and give some much needed clarity on the sanctions they can face for non-compliance, even if it is unavoidable.

In the meantime….

Pending reform, where redundancies are anticipated IPs should:

  • file form HR1 at the earliest possible opportunity; and
  • keep detailed records of all decisions taken in respect of employees, particularly where there has been a deviation from the requirements of TULRCA.

Despite the decision to prosecute in USC, if IPs make every effort to comply with the notification requirements of TULRCA, even if they notify late, the risk of personal criminal sanction will hopefully be minimised.