7 things to consider: Employment law tips when acquiring assets of a distressed business

You must be clear on the following:

1. Are you buying an economic entity that retains its identity? First, you should conduct an appropriate analysis to determine whether the assets you are acquiring amount to an economic entity that shall retain its identity following the transfer. This will dictate whether the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) shall apply to the transaction.
2. What type of insolvency proceedings apply? Next, it is essential to understand whether any insolvency proceedings, and if so what type, apply to the target business, as this will affect your potential responsibilities and liabilities for employees of that business. Employees of a business that is subject to non-terminal insolvency proceedings (e.g. a pre-pack administration) retain key protections under TUPE, including the right to transfer and special protection against dismissal, whereas employees of a business that is subject to bankruptcy proceedings or any analogous terminal insolvency proceedings lose those key protections.
3. Which part(s) of the business are you acquiring? Assuming TUPE applies and the target business is not subject to terminal insolvency proceedings, you should be absolutely clear about which part(s) of the business you are acquiring – only the employees assigned to those part(s) of the business should transfer, employees in other part(s) of the business should not. This may be more complicated if some employees have roles and responsibilities which straddle all parts of the business (e.g. Senior Management, Finance, IT, HR, etc)
4. Are there any outstanding job offers made by the transferor? Identify whether there are any outstanding job offers made by the transferor for positions in the part(s) of the business you are acquiring – you are not obliged to honour these job offers as they do not transfer from the transferor to the transferee under TUPE.
5. How will you inform and consult with affected employees? Whilst it may be unlikely that the transferor has complied fully with its duties to inform and consult with affected employees about the transfer, you should still prepare and provide a TUPE measures letter to the transferor/administrator prior to the transfer where at all possible. You should also inform, and where possible consult with, your own employees if they will be affected by the transfer.
6. What potential risks and liabilities will you assume? It may also be unlikely that you will obtain any valuable warranty and/or indemnity protection from the transferor/administrator for employment issues in the SPA, and so your due diligence will need to identify potential risks and liabilities which you may assume (e.g. liabilities for unpaid wages, unused holiday entitlement, unfair dismissal, redundancy costs, etc) and this should be factored into the final purchase price.
7. Redundancy consultation or not? If you will need to restructure the combined business after the transfer, you should keep in mind the triggers for collective redundancy consultation, namely where there is a proposal to make 20 or more employees redundant at a single establishment within a period of 90 days. Consider also whether it would be practicable, with the transferor’s consent, to conduct any pre-transfer redundancy consultation.

Our employment practice at Memery Crystal is hugely experienced at guiding clients through the myriad of employment-related issues in connection with proposed corporate transactions. If we can be of any assistance, please do not hesitate to contact Stephen Ravenscroft below or your usual Memery Crystal contact.

Disclaimer: We at Memery Crystal (and our parent company RBG Holdings plc) support and encourage free/independent thinking in relation to issues which are sometimes considered to be controversial subject matters. However, the views and opinions of the authors of articles published on our website(s) do not necessarily reflect the opinions, views, practices and policies of either Memery Crystal or RBG Holdings plc.