In the case of R v Northern Derbyshire Magistrates Court [2021], the High Court ruled that administrators that were appointed on behalf of a company’s creditors can be criminally liable under s194 (3) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). This is in addition to the possibility of civil penalties on the company itself.
Facts of the case
In this case, Mr Forsey was a director of West Coast Capital Limited (the “Company”) which was owned by Sports Direct. Mr Forsey signed and filed a notice to appoint three administrators after receiving a statutory demand from a supplier. From 6 January 2015, the Company removed all stocks and equipment from their Glasgow warehouse and ended all activity from this warehouse.
The Company entered into administration on 13 January 2015 and Mr Palmer and two others were selected as the joint company administrators. On 14 January 2015, the employees of the Glasgow warehouse received a letter declaring that all their jobs were at risk and inviting them to a meeting to discuss redundancy alternatives. However, shortly after, the employees received a further letter notifying them that they were being dismissed with immediate effect. It is important to point out that both letters had been signed by Mr Palmer.
Even though the HR1 form was dated 14 January 2015, the Redundancy Payments Services (RPS) did not receive the form till 4 February 2015.
In July 2015, criminal proceedings were brought against Mr Palmer and Mr Forsey for consenting to, conniving in, or neglecting to prevent the Company’s failure to notify the Secretary of State of the proposed redundancies.
During the proceeding, Mr Palmer raised a judicial review of the criminal proceedings against him on the grounds that he was not a director, manager, secretary or other similar officer in the Company, and therefore criminal proceedings couldn’t be brought against him. He argued that administrators are appointed by the court and subject to the Court’s supervisory jurisdiction, and he was simply an agent of the Company. He further argued that assuming such liability could conflict with an administrator’s duty to act in the best interest of the creditors.
Judgement
The Court held that if administrators were given immunity from prosecution, it would “…leave a vacuum in responsibility that would fail to protect the interest of workers and…the interest of their representatives and the Secretary of State.”
Lady Justice Andrews pointed out that if one of the claimant’s arguments, this being that a company as the employer under these circumstances could be liable of a criminal offence but the person responsible for the redundancies could not be liable for “conniving in, consenting to or neglecting to prevent” the failure by the company to give the relevant statutory notice to the Secretary of State was successful, “…there would be nothing to deter non-compliance, and the criminal sanction would be meaningless.”
In her judgement she cited the case of Re Home Treat Ltd [1991], where it was said that an officer was someone “…who holds an office and an office in relation to the company can apply to an administrator.” She therefore decided that it was parliament’s intention to focus on the functions of the individual concerned, and not on who they owe their duties to, when defining “officers” within the meaning of TULRCA.
She therefore dismissed Mr Palmer’s claim for a judicial review and determined that administrators can be prosecuted under s194 (3) of TULRCA.
The importance of the case
This case shows the consequences that administrators face for failing to complete the HR1 form and/or failing to submit it on time. This judgement means that administrators going forward will need to take personal responsibility for following statutory procedure, and they will want to make certain that the company does not commit any illegal activity which could lead to criminal proceeding for the company and its officials.
One way of preventing potential criminal proceedings, before an administrator accepts their appointment, could be to obtain verification from the company that it is not already in breach of the collective redundancy rules and ensure that the company has followed all necessary procedure. However, this can be difficult in insolvency situations where time is of the essence.
This decision to prosecute an administrator under s194 (3) is likely to have wide reaching consequences and will no doubt result in further cases coming before the Courts.
Therefore, we recommend that legal advice is always sought on the completion of the Form HR1.
An analysis of this case from an employment law perspective can be found here.
