No criminal liability for administrator who failed to notify redundancies

The Supreme Court has ruled that an administrator appointed under the Insolvency Act cannot be prosecuted if the employer has failed to notify the Secretary of State of proposed redundancies. This decision overturns an earlier High Court judgment, which had endorsed a ruling by the North Derbyshire magistrates that an administrator should be treated as an officer of the employer for these purposes.

The litigation was about the correct interpretation of Britain’s collective redundancies legislation, which imposes secondary criminal liability on a “director, manager, secretary or other similar officer”. The offence occurs if such a person has “connived” in or “consented” to the failure of a corporate employer to comply with its notification obligations (which is the primary criminal offence). These notification obligations are triggered where 20 or more redundancies are proposed within a period of 90 days.

Mr Palmer had been responsible for dismissing 84 employees without notice the day after he had been appointed administrator of their employer, in order to implement a “pre-pack” sale. He did not notify the Secretary of State until more than two weeks later - a clear breach of the notification requirements. Both he and a director of the employing company were later prosecuted. Several preliminary issues arose in the High Court. The only one the Supreme Court had to re-consider was whether an administrator was a “similar officer” for these purposes.

The Supreme Court took a detailed look at the collective redundancies legislation, the insolvency legislation under which Mr Palmer had been appointed administrator, and the relevant case law. It concluded that he was not an officer of the employer company for these (or any other) purposes. To be exposed to criminal liability in this way, the person must “hold an office within the constitutional structure of the body corporate, as is the case with directors, managers and secretaries”. Depending on the corporate structure, there were other possibilities, but an administrator appointed under the insolvency legislation was not one of them.

Because this case is about secondary rather than primary criminal liability, it is does not mean that administrators can ignore these notification obligations – or indeed the wider obligations to inform and consult before implementing collective redundancies. It does, however, illustrate the difficulties administrators face in complying, particularly where they are dealing with a pre-pack sale other urgent restructuring. While an employer is relieved from most of these obligations where there are "special circumstances which render it not reasonably practicable" to comply, this defence has been interpreted narrowly. Case law says that insolvency - even it is a sudden event – is not necessarily a special circumstance.