Transferred to a new business
Often the person appointed to look after the affairs of the employer will seek to sell the business as a going concern. This may occur after a period of marketing or could occur immediately through what is known as a pre-packaged deal (or prepack).
In the latter case the announcement of the appointment of an Insolvency Practitioner will often also include an announcement that the business has been sold. In this case it is usually the existing owners or management team that buy the business back.
It is possible since the introduction of the Transfer of Undertakings (Protection of Employment) Rights Act 2006 (TUPE) that the potential purchaser and the person appointed as an Insolvency Practitioner may seek to renegotiate the existing contracts of employment. This is done for the purpose of saving jobs. Such an agreement must be consensual – it would be agreed with a union if one exists or with representatives nominated by the employees. The provisions allowing this have been in force for only a short period of time but it is considered unlikely that this will happen on many cases.
When a party purchases a business out of an insolvency process they typically buy the ‘trade and assets’. This sale would not include any liabilities (except certain employee liabilities - see below) - the suppliers and creditors of the business would have no legal recourse to the purchaser for payment.
Once a sale as a going concern, has been concluded, the employees would transfer over to the purchaser together with their rights under their contracts (as amended above). It is possible for an employee to refuse to transfer but this employee would normally lose their rights to redundancy pay.
If the employee transferred over is owed wages or pay for holiday taken then a claim may need to be made to claim part or all of this back. An amount paid, up to the statutory limits (from 1 February 2011; £400) would need to be claimed on a Form RP1 from the Redundancy Payment Service. Any remainder owed would pass to the purchaser and they would normally be required to pay the balance. This provision is new as part of the TUPE 2006 regulations. It is possible that the purchaser may agree to pay the employees or loan the employees whilst they are awaiting payment from the Redundancy Payment Service.
Although the employee’s rights (subject to any amendment as outlined above) pass to a purchaser, the situation is different in respect of pension schemes.
