Failure to file an HR1 form: administrators not criminally liable

The Supreme Court recently considered whether administrators of a company can be prosecuted for a failure to provide notice to the Secretary of State, using form HR1, of proposed collective redundancies.

They found that for the purposes of interpreting the relevant section of the Trade Union and Labour Relations (Consolidation) Act 1992 ("TULRCA"), administrators were not an "officer" and so were not subject to the obligation to file an HR1. This decision, however, has the potential to impact much wider than the world of redundancies.  

What obligations does TULRCA impose?

An employer, who proposes making redundancies, has a duty to commence consultation:

• At least 30 days before redundancy, where 20 or more employees are to be made redundant (within a period of no more than 90 days).
• At least 45 days before redundancy, where 100 or more employees are to be made redundant within the same period.

Linked to this is a duty on the employer to notify the Secretary of State using form HR1 (adopting the same timescales) and the failure to do so leaves the employer open to conviction and a fine.

Central to the case of Palmer v Northern Derbyshire Magistrates' Court [2023] UKSC 38 was wording in TULRCA which can make "a director, manager, secretary or other similar officer" personally liable for the failure to give notice to the Secretary of State in circumstances where that has been done with their consent, connivance or as a result of their neglect.

What were the facts in Palmer?

Mr Palmer was appointed as one of the joint administrators of West Coast Capital (USC) Ltd ("USC"), a member of the Sports Direct group, on 13 January 2015. On the date of appointment, the administrators completed a sale of the entire business of USC, save for a warehouse located in Dundonald, Scotland.

On 14 January 2015, 84 employees at the warehouse were handed a letter signed by Mr Palmer, stating that they were at risk of redundancy which gave notice of USC's intention to consult with them at a staff meeting later that day. Shortly afterwards, they were handed a further letter, signed by Mr Palmer, dismissing them with immediate effect. However, notice of the redundancies was not given to the Secretary of State until 4 February 2015.

It was this background that saw criminal proceedings issued against a director of USC and Mr Palmer in July 2015.  

Is an administrator "another similar officer of a company"?

This question was central to Mr Palmer's argument that he had not committed an offence, with Mr Palmer arguing an administrator was not a "similar officer". This had limited success in the lower courts who were concerned that if an administrator was not an officer, there would be nothing to deter non-compliance, rendering the criminal sanction meaningless in the case of a company in administration.

The Supreme Court's view

The Supreme Court's approach was to consider the extent to which "officer" was defined in the relevant legislation, with TULRCA containing no definition. The Insolvency Act 1986 ("IA") contains a definition of "officer" being a "director, manager or secretary of a body corporate". Whilst that definition is not exhaustive it does not expressly refer to an insolvency officeholder. This was a key finding in the decision. Further, various provisions of the IA clearly distinguish between an officer of a company and an administrator, providing, in the Court's view, a clear picture that the IA, in creating the process of administration, did not classify an administrator as an officer of the company in administration.

In contrast to the lower Court which applied a functional test to the role of the officer, attaching it to anyone involved in management, the Supreme Court applied a constitutional test, attaching it only to those who held an office within the structure of the company and this, in their view, did not include an administrator.   

Will practice change?

The case is interesting as the events at issue date back to the time of another high profile unsuccessful HR1 prosecution in BIS v Smith, Peto and Wright,which related to the collapse of City Link parcel delivery company. At the time, that case seemed to herald a more aggressive approach toward policing TULRCA and the notification obligations.

There has always been a tension between the statutory requirements around redundancy consultation and notification and what is achievable in an insolvency situation. Against that context, this decision will be a welcome one for insolvency practitioners.

For directors faced with a potential insolvency requiring the making of redundancies, the position remains unchanged, and our view remains that directors should file an HR1 prior to any insolvency appointment when they know redundancies are likely and that it will be best practice for administrators to continue to file an HR1 following appointment provided the notification criteria are met.

The focus for those in the insolvency world will be to consider how the Supreme Court's reasoning might be applied beneficially to remove the threat of personal liability for administrators (and other officeholders) in other areas of legislation which extend liability to "officers".