Transfer of Undertakings (Protection of Employment) Regulations 2006

rose to move to resolve, That this House calls upon Her Majesty’s Government to revoke the regulations laid before the House on 7 February (SI 2006/246) [25th Report from the Merits Committee]. The noble Lord said: My Lords, I am very grateful to the Minister for coming to the Chamber today to explain the Government’s position on these regulations. I declare my interest as a solicitor and a partner in the firm of Beachcroft LLP. I have been inspired to put down this Motion to revoke by the very serious concerns raised by those who are most directly affected by the regulations; namely, those involved in turning around and, in particular, rescuing failing companies where the transfer of undertakings is all important. Above all, these highly skilled professionals need as much certainty and as little uncertainty as possible. Our concern is with the insolvency provisions of the regulations, specifically with their drafting and their practical application. These regulations were intended to give effect to an EC directive from 2001, fully five years ago. The Government have had plenty of time to get them right, but I believe they have failed abjectly. Over a year ago, the DTI first consulted on the draft regulations and respondents included R3, the representative body for insolvency practitioners in England and Wales, whose expertise in these matters is universally recognised as being second to none. It drew attention to the unsatisfactory nature of the regulations, setting out its detailed concerns and suggesting alternative wording that would have made the regulations workable. Its advice, however, seems to have been completely ignored. Despite many subsequent representations to Ministers and officials, still nothing was done to improve matters. In the past, the operation of TUPE has deterred potential purchasers from buying insolvent businesses because of the prospect of inheriting onerous and sometimes uncertain liabilities. One of the stated aims of the regulations is to make it easier for insolvent businesses to be transferred to new employers by reducing some of the burdens that will pass across to a purchaser. We on these Benches fully support this policy objective. Insolvency practitioners, too, are as anxious as anyone else that as many jobs as possible should be saved when an employer becomes insolvent. However, if the regulations are to have the desired effect, they must be drafted in clear, unambiguous language. Only then will those dealing with insolvencies and those acquiring businesses subject to insolvency proceedings know where they stand and precisely how the provisions of the regulations will affect transactions. Unfortunately, the regulations, as regards the insolvency provisions, failed to achieve that. That is because they are drafted in language that is so loose and imprecise it is not possible to discern with any clarity how they are supposed to work. Instead of bringing clarity, they bring confusion to new, unprecedented heights. My principal concerns are that these regulations, first, fail to specify the types of UK insolvency proceedings to which they are intended to apply; secondly, fail to make clear which liabilities will pass to a purchaser and which will not; and, thirdly, impose unrealistic obligations on insolvency office holders with which it would be impossible for them to comply and with penalties that will ultimately fall on creditors. The regulations transpose the vague generic language of the directive without attempting to specify how it is to apply in the context of specific UK insolvency proceedings. Only expensive and time-consuming judicial interpretation will establish the circumstances in which they are intended to apply. The regulations seek to draw a distinction between two types of insolvency proceedings: those opened with a view to the liquidation of the assets of the transferor and those opened not with a view to the liquidation of the assets. However, that distinction makes no sense at all in the context of UK insolvency. It is unclear which of the UK insolvency regimes would fall within which provision. Assets are sold in every type of insolvency process, whether administration, administrative receivership, company voluntary arrangement or liquidation, even where the whole or a part of the business is preserved and sold as a going concern. In some cases, part of a business will be preserved while other remaining assets are disposed of piecemeal. In that context, I ask the Minister what is the phrase ““[not] with a view to the liquidation of the assets of the transferor”” supposed to mean? How is it intended to apply? It is possible for a business to be sold in any of the regimes. Consequently, it is possible for employees of insolvent businesses to be affected by a transfer or proposed transfer of the business, regardless of the type of insolvency regime into which their current employer has entered. Where there is a transfer, the treatment of the employees should be the same, regardless of the insolvency process used. The uncertainty caused by ambiguous drafting will cause delays only in the administration of the insolvency and, most important of all, reduce the chances of successful rescue and preservation of jobs. It is unbelievably complacent of the Minister’s colleagues, by their own admission, to leave it to the courts to sort this mess out, ultimately at the expense of creditors and to the detriment of employees. Either the regulation should be amended to make it clear explicitly which provisions apply to which types of insolvency process or they should simply apply to all insolvency proceedings equally without distinction. Regulation 8 says that where the transferor is subject to insolvency proceedings which have been opened—"““not with a view to the liquidation of the assets of the transferor””—" certain accrued liabilities will be paid from the national insurance fund with the balance of any liabilities passing to the transferee. Reference is made to the debts payable by the Secretary of State under the redundancy and insolvency provisions of the Employment Rights Act 1996. However, the interpretation of this provision also is uncertain. On a straight reading, the regulation seems to provide for the payment out of the national insurance fund only of the debts payable under the insolvency provisions. This makes it difficult to understand the reference to the redundancy provisions. First, the guidance note issued by the DTI in February indicated that payments would be made out of the national insurance fund in respect of both the redundancy and the insolvency provisions. On 3 April, only three days before these regulations were due to come into force, the Redundancy Payments Office issued a statement of its own. It suggested that where there is a transfer or an unfair dismissal made in connection with a transfer, it will pay only the arrears of pay and accrued holiday pay, which are often minimal or even non-existent. There would be no termination or redundancy payments at all. So, again, the Government have added to the confusion. The left-hand appears to contradict the right-hand which, I believe, is unacceptable and must be resolved as a matter of urgency. It is difficult to see how these provisions should or could be amended until Ministers explain exactly what the Government were seeking to achieve by these provisions and which liabilities the Secretary of State is prepared to permit the national insurance fund to meet. Before closing, I would like to raise another problem. The regulations include, first, a requirement for the transferor to provide the transferee with information regarding the employees to be affected by the purchaser with a potential liability of at least £500 per employee for a failure to comply and, secondly, joint and several liability between transferor and transferee in the event that employees are not properly consulted prior to the transfer taking effect. These provisions fail to take into account the unique circumstances in which transfers of businesses are affected in the insolvency arena. Within the very tight timeframe of a live insolvency, it will not usually be possible to comply with this requirement and the insolvency practitioner will usually not have enough information to do so in any event. Insolvency practitioners, attempting to act in the best interests of creditors by effecting a swift sale, should not be exposed to the potential costs and delays of defending claims in a tribunal by purchasers on the basis that full information was not given. Furthermore, any award made by a tribunal could have a significant impact on the return to unsecured creditors. Should not the regulations have excluded the application of these provisions to insolvency-related transfers? If these regulations stand, it will arguably be impossible for any insolvency practitioner, prospective purchaser of an insolvent business, employee or any of their professional advisers to ascertain with certainty what they mean, what they are intended to achieve and where they should apply. The practical effect will be that fewer jobs and businesses will be saved, and that is surely precisely the opposite of everything we are seeking to achieve. The insolvency provisions of the 2006 regulations are uncertain and ambiguous. They even conflict with the Government’s own guidance notes. What a mess! Many of us have been inundated with representations urging the amendment of these regulations. I have been greatly assisted by my noble friend Lady Miller of Hendon and R3—the Association of Business Recovery Professionals—the Insolvency Lawyers’ Association and some of the leading law firms. All of us believe that these regulations are wholly unacceptable, should be withdrawn, reconsidered and redrafted. I beg to move. Moved to resolve, That this House calls upon Her Majesty’s Government to revoke the regulations laid before the House on 7 February (SI 2006/246) [25th Report from the Merits Committee].—(Lord Hunt of Wirral.)