Grahame Anderson comments on this important case, handed down today by the Supreme Court, in which David Reade KC acted for the successful appellant. Read the full judgment at https://www.supremecourt.uk/cases/docs/uksc-2021-0233-judgment.pdf
I once did a mini-pupillage with a criminal barrister who told me that – in that sort of work – if you’re arguing about the law, you’ve lost. That may well be true when it comes to your standard criminal offences, but there is a world of legal interest when it comes to the under-discussed criminal provisions underlying the enforcement of certain collective rights in the employment sphere.
Employment lawyers will know that the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”) creates consultation and information obligations when employers propose to make 20 or more employees redundant in a period of 90 days or less. S. 188(1) requires employers to consult with representatives of the affected employees in those circumstances; s. 193 creates a duty to inform the Secretary of State.
What employment lawyers may be less familiar with are the criminal offences created in s. 194: sub-section (1) makes it an offence for the employer to fail to give the Secretary of State the notice required by s. 193. Sub-section (3) extends the offence in the following way; it 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, he as well as the body corporate is guilty of the offence and liable to be proceeded against and punished accordingly (underlining added).
Large-scale redundancy processes and corporate insolvencies often go hand in hand: the question that arose in this appeal is whether an administrator appointed pursuant to the Insolvency Act falls within the underlined text above: is an administrator a “similar officer of the body corporate”?
The defendant Palmer was an administrator of USC (one of the Sports Direct group companies) which went into administration at the beginning of 2015. On 14 January 2015, Palmer sent employees at one of USC’s warehouses a letter placing them at risk of redundancy and, shortly thereafter, dismissing them. No notice of the redundancies was sent to the Secretary of State until 4 February 2015 and it was alleged that he had thus committed an offence under TULRCA s. 193, read with s. 194(3).
Palmer took the point and it was determined against him at first instance in May 2018. The Divisional Court (Andrews LJ and Linden J) upheld that judgment in November 2021 ([2022] ICR 531), rejecting Palmer’s claim for judicial review.
The legal position was, prior to the Supreme Court’s judgment, something of a blank slate: neither TULRCA nor the Insolvency Act 1986 itself gives a definition of “officer” for the purposes of s. 194(3), and Lord Richards observed (para. 20) that there is no “clear statement in any authority” that can be taken as the generally-understood definition for those purposes.
Indeed, Lord Richards noted that, in some 170 uses of the word “officer” in the 1986 Act, none suggests that an administrator is an officer of the company and, indeed, many suggest that opposite:
- 251 of that Act, for example, defines “officer” in relation to company insolvency as “includ[ing] a director, manager or secretary” but it is noteworthy, as is pointed out at para. 22 that it does not include “administrator” in that context (notwithstanding the fact that the definition is set to be non-exhaustive).
- 212(1) draws a neat distinction between officers on the one hand (in s. 212(1)(a)) and liquidators, administrators and receivers on the other (s. 212(1)(b));
- the same distinction is drawn in Sch B1, para. 45(2).
That said, there were some authorities that, at least by implication, pointed in the direction of administrators being officers:
- in In re Home Treat Limited [1991] BCC 165, Harman J made an order under s. 727 of the Companies Act 1985 (reproduced now in s. 727 of the 2006 Act) granting to a company’s administrators on an unopposed application immunity from certain ultra vires acts, a form of relief available only to “an officer of the company or a person employed by a company as auditor”. In granting the relief, therefore, it is to be inferred that Harman J was satisfied that the administrators were officers. If that was the meaning of Home Treat it is no longer to be regarded as good law. As the Supreme Court held at para. 34, rejecting the reasoning in that case:
the fact that an administrator is an officer of the court and holds the office of administrator in relation to a company is not a sound basis for concluding that the administrator is an “officer of the company”. In truth, it does no more than state the conclusion.
- for the same reason, the Supreme Court regarded In re Powertrain Limited [2015] EWHC 3998 (Ch) (per Newey J (as then) following Home Treat) as also wrongly decided.
So far so good: but that is not the end of the story. Of course, the simple fact that an administrator is not in law properly to be regarded as an “officer of the company” is not to say that an administrator could not be an “other similar officer” for the purposes of s. 194(3). Lord Richards’s judgment was that there was no scope for an expansive reading such as to bring an administrator within the scope of the offence.
In the Divisional Court Andrews LJ said that “Parliament must have intended that in principle anyone with responsibility for the day to day management and control of the corporate entity should be capable of being fixed with personal liability” (para. 129 of the Divisional Court’s judgment) and that “similar” here must mean “someone who carries out the types of functions undertaken by the officers of the company who are expressly identified” (para. 130). The Supreme Court rejected the Divisional Court’s policy reasoning:
- If the legislative purpose had been to adopt such a functional test, it could have done so (e.g. “other person concerned in the management of the body corporate” or similar).
- Another provision expressly widens the scope of the offence to situations in which the affairs of the body corporate are being managed by members;
- In In re B Johnson and Co Limited [1955] 1 Ch 634, the Court of Appeal held that a receiver and manager appointed under a debenture was not an officer of the company, even though they had complete control over its affairs.
- The true meaning of the expression employed in s. 194 is that it refers to “an office within the constitutional structure of the body corporate”. While a company may be limited in the types of officer in place, generally speaking, other bodies corporate may be differently structured: eg, foreign companies or companies incorporated by royal charter.
The Supreme Court does not make reference to the general principle of legislative construction that penal statutes must be strictly construed against inculpation, but the principle is certainly reflected in the outcome. It follows from the Supreme Court’s judgment that an administrator (and thus necessarily a liquidator) will have no criminal liability for failures in relation to collective consultation and notification. As a matter of policy, the desirability of that state of affairs may be debated, but the outcome is decisive and admirably clear.
