R (on the application of Palmer) v Northern Derbyshire Magistrates' Court and another
| Jurisdiction | England & Wales |
| Judge | Lord Richards,Lord Reed,Lord Hodge,Lord Burrows,Lady Rose |
| Judgment Date | 01 November 2023 |
| Neutral Citation | [2023] UKSC 38 |
| Court | Supreme Court |
[2023] UKSC 38
Lord Reed, President
Lord Hodge, Deputy President
Lord Burrows
Lady Rose
Lord Richards
Appellant
David Reade KC
James McWilliams
(Instructed by Sonn Macmillan Walker)
2 nd Respondent
Paul Ozin KC
Georgina Hirsch
(Instructed by Insolvency Service, Criminal Enforcement, Prosecutions South)
Respondents
1) Northern Derbyshire Magistrates' Court
2) The Secretary of State for Business, Energy and Industrial Strategy
Heard on 8 March 2023
Lord Richards ( with whom Lord Reed, Lord Hodge, Lord Burrows and Lady Rose agree):
The issue on this appeal is whether an administrator of a company appointed under the Insolvency Act 1986 (“the IA 1986”) is an “officer” of the company within the meaning of the phrase “any director, manager, secretary or similar officer of the body corporate”, as used in section 194 of the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”).
The statutory context in which this issue arises is that part of TULRCA which imposes duties on employers who are proposing to make employees redundant.
There is a duty to consult appropriate representatives of the affected employees where the proposal is to make 20 or more employees redundant within a period of 90 days or less: section 188(1). The consultation must commence at least 45 days before the first dismissal takes effect, where 100 or more employees are to be made redundant, and at least 30 days in other cases: section 188(1A). Where there are “special circumstances which render it not reasonably practicable to comply with” these requirements, “the employer shall take all such steps towards compliance with that requirement as are reasonably practicable in those circumstances”: section 188(7). Employment tribunals may make protective awards of remuneration in the event of a failure to comply with these requirements: section 189.
There is also a duty imposed on the employer to notify the Secretary of State of proposed redundancies, with time limits similar to those for consultation with the employees' representatives: section 193. The notice must contain such information as may be directed and the Secretary of State may require the employer to provide additional information. Section 193(7) contains the same modification of the duty in the event of special circumstances as section 188(7).
Directly relevant to this appeal are the offences created by section 194. Section 194(1) provides that an employer who fails to give notice to the Secretary of State in accordance with section 193 commits an offence and is liable on summary conviction to a fine not exceeding level 5 on the standard scale. Section 194(3) provides:
“Where an offence under this section committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to neglect on the part of, any director, manager, secretary or other similar officer of the body corporate, or any person purporting to act in any such capacity, he as well as the body corporate is guilty of the offence and liable to be proceeded against and punished accordingly.”
As the judgment of the Divisional Court in the present case ( [2021] EWHC 3013 (Admin); [2022] ICR 531) recognised, it is important to understand the role and functions of an administrator.
The process of administration of a company was an entirely new insolvency regime, governed by the IA 1986 and based largely on the recommendations of the Report of the Review Committee on Insolvency Law and Practice chaired by Sir Kenneth Cork (1982) (Cmnd 8558) (“the Cork Committee”). The original provisions of the IA 1986 dealing with administration were replaced by Schedule B1 to the IA 1986 (“Schedule B1”), introduced by the Enterprise Act 2002 with effect from 15 September 2003.
The appointment of an administrator may be made by the court, the holder of a qualifying floating charge or the company or its directors: paragraphs 2 and 10 to 34 of Schedule B1. The court, the company or its directors may appoint an administrator only if the company is or is likely to become unable to pay its debts (paragraphs 11 and 27(2)) and the holder of a qualifying floating charge may do so only if the floating charge is enforceable (paragraph 16).
Paragraph 1(1) of Schedule B1 defines the administrator of a company as “a person appointed under this Schedule to manage the company's affairs, business and property”. The administrator is an officer of the court, whether or not appointed by the court: paragraph 45. A person appointed as administrator must be qualified to act as an insolvency practitioner in relation to a company: paragraph 6. This includes a requirement to be a member of a professional body recognised by the Secretary of State under section 391 of the IA 1986 and to be permitted to act as an insolvency practitioner by or under the rules of that body: section 390A.
Paragraph 3 sets out the purpose of an administration. Paragraph 3(1) and (2) provide (the purposes stated in paragraph 3(1) being in descending order of priority):
“(1) The administrator of a company must perform his functions with the objective of— (a) rescuing the company as a going concern, or (b) achieving a better result for the company's creditors as a whole than would be likely if the company were wound up (without first being in administration), or (c) realising property in order to make a distribution to one or more secured or preferential creditors.
(2) Subject to sub-paragraph (4), the administrator of a company must perform his functions in the interests of the company's creditors as a whole.”
As the issue on this appeal is one of principle and statutory construction, not affected by the circumstances of this particular case, the facts can be briefly summarised and, for the purposes of the appeal, they are not in dispute.
The appellant, Robert Palmer, was appointed as one of three joint administrators of West Coast Capital (USC) Ltd (“USC”) on 13 January 2015. Among the joint administrators, Mr Palmer had responsibility for employees and preferential claims.
USC was a member of the Sports Direct group and traded as a retailer of clothing, footwear and accessories from premises predominantly in the north of England and Scotland. The operations in Scotland included an office and warehouse in Dundonald. On the same day as their appointment, the joint administrators sold the whole of the business of USC, other than the warehouse in Dundonald, as a “pre-pack” sale to another company in the Sports Direct group. By a “pre-pack” sale is meant a sale which has in large part been arranged before the administrators are appointed but with the binding sale agreement being made by the administrators.
Prior to the appointment of the administrators, a statutory demand for nearly £1.3 million had been served on USC on 17 December 2014. On 23 December 2014, the sole director of USC, Michael Forsey, resolved to take steps to place USC in administration. Having taken the requisite preliminary steps in early January 2015, USC went into administration on 13 January and the joint administrators were appointed. Prior to that date, all operations at the Dundonald warehouse ceased. By 11 January 2015, all stock, IT equipment and other property had been removed from the warehouse.
On 14 January 2015, the employees at the Dundonald warehouse were handed a letter signed by Mr Palmer, stating that they were at risk of redundancy and giving notice of USC's intention to consult with them at a staff meeting that day. Shortly afterwards, they were handed a further letter, also signed by Mr Palmer, dismissing them with effect from that day.
No notice of the redundancies was given to the Secretary of State until the relevant form, signed by Mr Palmer, was emailed on 4 February 2015.
In July 2015, criminal proceedings were commenced in the Northern Derbyshire Magistrates' Court by the Secretary of State under section 194(3) against Mr Forsey and Mr Palmer. It was alleged that Mr Forsey, as the director of USC, consented to, connived at, or neglected to prevent the failure by USC to notify the Secretary of State of the proposed redundancies from early January 2015 to 13 January 2015 when USC went into administration. The same charge was brought against Mr Palmer, in his capacity as the administrator of USC, from the time that it went into administration to 4 February 2015.
Mr Forsey and Mr Palmer entered pleas of not guilty on 14 October 2015. A number of legal issues were raised by them. The legal issue giving rise to the present appeal was heard and determined by District Judge Andrew Davison, in the Northern Derbyshire Magistrates' Court, in May 2018. In a reserved judgment given on 29 May 2018, District Judge Davison ruled that an administrator is an officer of a company within the meaning of section 194(3) of TULRCA.
Mr Palmer was given permission for judicial review of District Judge Davison's decision. In a judgment given on 12 November 2021, the Divisional Court (Andrews LJ and Linden J) ( [2022] ICR 531) upheld the decision below and dismissed the claim for judicial review. Andrews LJ, giving the judgment of the court, reviewed the provisions of Schedule B1 which set out the obligations, functions and powers of an administrator. From these it was clear that an administrator had the day-to-day conduct of the affairs of the company from the time of appointment, including the power to make employees redundant. On this basis, and having regard to a line of authority to which I will refer, it was held that an...
To continue reading
Request your trial
-
Guilty Or Not Guilty: UK Supreme Court Decides Fate Of Administrator Appointed Under Insolvency Act
...giving, and the recent UK Supreme Court decision in R (on the application of Palmer) v Northern Derbyshire Magistrates' Court and another [2023] UKSC 38 is a welcome gift to insolvency practitioners. The Supreme Court held that an administrator of a company appointed under the Insolvency Ac......
-
Guilty or Not Guilty: UK Supreme Court Decides Fate of Administrator Appointed Under Insolvency Act
...giving, and the recent UK Supreme Court decision in R (on the application of Palmer) v Northern Derbyshire Magistrates’ Court and another [2023] UKSC 38 is a welcome gift to insolvency practitioners. The Supreme Court held that an administrator of a company appointed under the Insolvency Ac......