Buying a business out of insolvency - employee liabilities and TUPE
Q: I want to buy a business that’s about to go bust. Do I have to pay the claims of its employees?
A: It depends on:
- what you buy (assets alone or a business);
- the type of insolvency procedure (was it “instituted with a view to the liquidation of the assets of the transferor”?).
The Transfer of Undertakings (Protection of Employees) Regulations 2006 (TUPE) generally mean that:
- employment obligations move to the purchaser when a business is transferred; and
- rights and obligations relating to employees who were dismissed in connection with the transfer are also transferred to the purchaser (unless the dismissal was for an economic, technical or organisational reason).
However, in an insolvency “instituted with a view to the liquidation of the assets of the transferor” these obligations do not automatically transfer to the purchaser.
A challenge is that most businesses are transferred using administration and the obligations probably do then transfer to the purchaser.
Other pitfalls are that even if you purport to buy assets alone and there are elements of business continuation (intellectual property transfer, some employees rehired, same product/customers etc), the Employment Tribunal may find that it was a business transfer.
Liquidation may not help business continuity, but it can help avoid employment liabilities for a purchaser.
- be prepared to factor the cost of employment liabilities into your price calculation; and
- make sure there’s an experienced insolvency adviser on your team early.
Date: 12th September, 2008
Articles from this Author
1st November, 2018
Budget 2018 - HMRC preferred creditor in insolvency
23rd March, 2018
20th July, 2017
Recast European Insolvency Regulation
26th June, 2017
The Recast European Insolvency Regulation (the “Recast EIR”)
Contact a Partner
Lisa Spearman, Private Client Partner updates on 'Changes to Main Residence Relief from Capital Gains Tax'… twitter.com/i/web/status/1…
For the latest Mercer & Hole news, visit our LinkedIn page mercer-&-hole