Does TUPE Apply to an Insolvency Sale?

TUPE and Insolvency: The Basics

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protect employees when a business or undertaking is transferred.

TUPE defines “relevant insolvency proceedings” as proceedings “opened in relation to the transferor not with a view to the liquidation of the assets of the transferor and which are under the supervision of an insolvency practitioner” (regulation 8(6), TUPE).

However, TUPE does not list exactly which insolvency procedures fall within this definition, leading to debate about its scope.

Key point: If the transferor is subject to insolvency proceedings under regulation 8(6), the automatic transfer principle applies, and employees transfer to the purchaser.

TUPE and Administration

The primary aim of administration is to rescue the company or partnership as a going concern, not to liquidate its assets. For this reason, administration falls under regulation 8(6) TUPE rather than regulation 8(7).

• This was confirmed by the Court of Appeal in Key2Law (Surrey) LLP v De’Antiquis [2011] EWCA Civ 1567, which upheld the EAT’s decision in OTG Ltd v Barke and others [2011] IRLR 272.
• The decision confirmed the government’s view that administrations are covered by regulation 8(6) TUPE.
• By contrast, in Oakland v Wellswood (Yorkshire) Ltd [2009] IRLR 250, the EAT had suggested that a pre-pack administration might fall under regulation 8(7). Following Key2Law, this is no longer good law.

TUPE and administration – employees usually transfer with protection.

TUPE and Liquidation: Regulation 8(7)

Regulation 8(7) TUPE applies to:

• Bankruptcy proceedings, or
• Analogous insolvency proceedings aimed at liquidating the transferor’s assets, under the supervision of an insolvency practitioner.

According to DBT guidance (TUPE 2006 – Redundancy and insolvency payments), this covers:

• Compulsory liquidation.
• Creditors’ voluntary liquidation.

These are considered terminal insolvency procedures.

TUPE does not apply to liquidation in the same way as administration.

Effect on Employees Under Regulation 8(7) TUPE

If a transfer takes place during bankruptcy or liquidation:

• Regulation 4 TUPE (automatic transfer) does not apply.
• Employees of the insolvent business do not automatically transfer to the buyer.
• The transferee can “cherry pick” which employees (if any) it wants to employ after purchase.

This remains the case even if liquidation was chosen deliberately to avoid TUPE. For example:

• In Bowater and others v NIS Signs Ltd (in liquidation) ET/1901181/09, the tribunal held that entering into a creditors’ voluntary liquidation to preclude TUPE did not make the procedure a sham.

TUPE and liquidation – employees are not automatically transferred.

What Does “Under the Supervision of an Insolvency Practitioner” Mean?

The distinction between regulation 8(6) and 8(7) depends partly on whether the transferor is under the supervision of an insolvency practitioner (IP).

This was clarified in Ward Brothers (Malton) Ltd v Middleton & others UKEAT/0249/13:

• Insolvency practitioners had been on-site but were not officially appointed.
• As they were acting only in an advisory capacity, regulation 8(7) was not triggered.
• The EAT confirmed that a person only acts as an IP once formally appointed as:
  • a liquidator,
  • a provisional liquidator,
  • an administrator, or
  • an administrative receiver.

Key takeaway: No formal appointment = not under the supervision of an insolvency practitioner, so TUPE protections may still apply.

Key Takeaways: TUPE and Insolvency Sales

• Administration (regulation 8(6)) → TUPE applies, employees transfer with protections.
• Liquidation/bankruptcy (regulation 8(7)) → TUPE protections are reduced, employees do not automatically transfer.
• Supervision of an IP is crucial — TUPE insolvency provisions only apply if an insolvency practitioner has been formally appointed.