EAT upholds tribunal decision on TUPE transfer date and insolvency exception
TUPE protects employees when a business changes hands by automatically transferring their employment to the new owner. However, where a business is already in certain types of insolvency, TUPE may not apply in the usual way.
Background
In Secretary of State for Business and Trade v Sahonta and others, Morton's Rolls Ltd, a well-known bakery, collapsed after running into severe financial difficulty. A conditional agreement was reached for a new company, Phoenix Volt, to take over elements of the business. But despite the agreement being signed, the bakery could not be taken over immediately. Morton had stopped trading, its bank account had been frozen, staff had been laid off, and Phoenix did not yet have access to the premises.
Shortly afterwards, a provisional liquidator was appointed to Morton. During this period, Phoenix made arrangements to restart production and eventually resumed baking operations, employing a number of former Morton staff.
Former employees sought payments from the National Insurance Fund for money owed following Morton’s collapse. The Secretary of State opposed those claims, arguing that the business had already transferred to Phoenix at the point the agreement was signed. If that were correct, employees would have moved across automatically and would not qualify for National Insurance Fund payments.
The tribunal disagreed, finding that the business had not transferred until Phoenix was genuinely able to run the bakery as a going concern. It also concluded that Morton was already in formal insolvency proceedings aimed at liquidation by that point. In such situations, TUPE’s usual protections do not apply and employees do not automatically transfer to the buyer.
The EAT’s decision
The EAT dismissed the Secretary of State’s appeal. It confirmed that identifying when a TUPE transfer takes place is a practical, fact-based exercise. The correct question is when responsibility for operating the business actually moved from the old employer to the new one. The tribunal had been entitled to find that this only happened once Phoenix had secured the means to recommence baking and employ staff, not at the point the agreement was signed.
The EAT also agreed that Morton was already in a form of insolvency that disapplies TUPE’s normal effects. A provisional liquidator had been appointed by the court, the process was aimed at liquidation, and the insolvency practitioner was actively involved in managing Morton’s assets. In those circumstances, the legal mechanism that normally transfers employees to a new employer does not operate.
As a result, the employees’ claims for National Insurance Fund payments can now be considered by the tribunal.
Learning points for employers
The decision reinforces that TUPE does not depend solely on the paperwork. A transfer happens only when the incoming business is genuinely able to take over responsibility for running the undertaking. It also highlights that where a business is already in formal insolvency aimed at liquidation, TUPE’s usual transfer rules may not apply at all.
For organisations considering the purchase of distressed businesses, this provides greater clarity on when employment liabilities will, and will not, transfer. Ensuring early, specialist advice remains essential in such situations.
For more information or advice, please contact Georgia Blesson in our Employment team.