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Supreme Court decides that administrators are not criminally liable for failure to file HR1

In R (on the application of Palmer) v Northern Derbyshire Magistrates’ Court and anor, the Supreme Court has held that a company administrator appointed under the Insolvency Act 1986 was not an “officer” of the company within the meaning of the relevant legislation (s194(3) of the Trade Union and Labour Relations (Consolidation) Act 1992 (‘TULRCA’)) and therefore could not be criminally liable for an offence under s194 TULRCA, relating to the company’s failure to notify the Secretary of State (‘SoS’) of collective redundancies.

Under TULRCA, where an employer proposes to dismiss 20 or more employees at one establishment within a period of 90 days or less, it is required to give notice to the SoS at least 30 days before the first dismissal takes effect. Where the proposed redundancies impact 100 or more employees, the notice period is extended to 45 days. Notification is given via form HR1, and the relevant information is collected by the Redundancy Payments Service in order that job brokering and training services can be offered by relevant agencies to the affected individuals. Failure to submit form HR1 within the required timescales is a criminal offence, liable to a fine on summary conviction. If the offence is committed with the consent of any “director, manager, secretary or other similar officer of the body corporate”, or is attributable to the neglect of any of those persons, then they may be personally criminally liable.

To summarise the facts briefly, Mr Palmer was appointed as one of the joint administrators of a company, USC, on 13 January 2015. On 14 January 2015, employees were handed a letter, signed by Mr Palmer, to confirm that they were at risk of redundancy and giving notice of the company’s intention to consult with them at a staff meeting that day. Later that day, they were handed a further letter, again signed by Mr Palmer, dismissing them with immediate effect. No form HR1 was submitted until 4 February 2015. In July 2015, Mr Palmer was the subject of criminal proceedings, alleging that he had committed an offence under section 194 of TULRCA.

In response to the criminal proceedings, Mr Palmer argued that, as an administrator, he was not an “officer” within the meaning of the relevant legislation, so could not be personally liable. At first instance, the District Judge disagreed and found that Mr Palmer was an officer of the company. Mr Palmer applied for a judicial review of the decision, but this was rejected by the Divisional Court. As such, Mr Palmer ultimately appealed to the Supreme Court.

The Supreme Court held that an administrator of a company appointed under the Insolvency Act is not an “officer” of the company for the purposes of s194 TULRCA. In the absence of any definition of “officer” for the purposes of sections 193 – 194 of TULRCA, the Supreme Court looked at the Insolvency Act 1986: none of the references to “officer” in the Insolvency Act suggested that this would include an administrator and, importantly, some of the references clearly showed that an administrator is not considered to be an officer of a company. The Supreme Court considered the case law relied upon by the Divisional Court, as well as the various policy arguments advanced by both parties, but ultimately concluded that an administrator is not an officer of a company.

This judgment, and the clarity it brings, will be welcomed by insolvency practitioners. The circumstances around any administrator’s appointment are often fast-moving and challenging, and there is inherent difficulty in balancing obligations under TULRCA with the duty to act in the best interests of creditors as a body. The Supreme Court’s decision will provide comfort to administrators that they will not face criminal liability for failures to file form HR1. However, in the light of the fact a fine may still be levied on the employer itself for failure to comply with TULRCA, and the potential benefits to employees of compliance, it remains that case that filing an HR1 form, as soon as possible after it becomes clear that redundancies may be required, is to be advised.

To discuss any of the issues raised in this article, please contact our Employment Team or our Banking, Restructuring and Insolvency Team, who would be happy to help.

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