The answer to that question and with a huge sigh of relief is thankfully not, following the Supreme Court finding that an administrator of a company appointed under the Insolvency Act 1986 (“IA 1986”) is not an “officer” of the company within the meaning of section 194(3) of the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”).
The Supreme Court in handing down its judgment in R (on the application of Palmer) (Appellant) v Northern Derbyshire Magistrates Court and another (Respondents) allowed Mr Palmer’s appeal and quashed the previous decision made by the District Judge in the Northern Derbyshire Magistrates – see our previous blog.
This decision will be welcomed by insolvency practitioners given the potential criminal liability that attaches to a failure to comply with section 194(3) of TULRCA.
What is the issue?
There is often tension between employment and insolvency laws and a clear example of this is where administrators decide that it is necessary to make redundancies.
Section 193(2) of TULRCA requires that an employer proposing to dismiss 20 or more employees needs to give the Secretary of State at least 30 days’ notice of the intention to make those redundancies but this is rarely possible when a company is in administration. The nature of administration means administrators need to act swiftly if redundancies are necessary.
However, failure to give notice in accordance with section 193 of TULRCA means that an employer commits an offence under section 194(1) of TULRCA and is liable on summary conviction to a fine not exceeding level 5 on the standard scale.
Section 194(3) of TULRCA extends the offence to any “director, manager, secretary or other similar officer of the body corporate” where the offence is “proved to have been committed with the consent or connivance of, or to be attributable to neglect on the part of” those persons.
The question which the Supreme Court had to address, is whether an administrator was an “officer” within the meaning of s194(3)?
When the case was initially heard in the Northern Derbyshire Magistrates Court, the court rejected Mr Palmer’s argument and found that an administrator, could be made the subject of a prosecution for an offence under section 194(3) of TULRCA because an administrator is a “director, manager, secretary or other similar officer” of the company and as such an administrator could be held criminally liable for non-compliance. Mr Palmer’s judicial review application was rejected as was his application for appeal.
The case made it all the way to the Supreme Court, where having looked at the language in the IA 1986 determined that none of the references in the Act suggested that an administrator is an officer of the company. The judgement stated that it could be possible for an administrator to fall within section 194(3) of TULRCA if an extended meaning were given to “other similar officer”, however the judges found no scope to give such an extended reading.
Do administrators have to send form HR1 at all?
Although the decision will give comfort to administrators that they will not be criminally liable under section 194(1) of TULRCA if they don’t file a HR1, we remain of the view that best practice is to continue do so as soon as redundancies are contemplated – even if the directors may have filed (or say they have filed) a form already.