Failure to complete an HC1 form (even inadvertently) could result in criminal prosecution for an administrator

Labor law and insolvency law can sometimes have a strained relationship, especially when laws protecting employee rights are in conflict with an insolvency practitioner’s duty to act in the best interests. of all creditors (as opposed to a single group). But the case of Palmer v North Derbyshire Magistrates’ Court should be taken into account by insolvency practitioners, as it confirms that they may be criminally liable if they have not informed the Secretary of State of the planned layoffs.

This blog considers Palmer, why the court reached its conclusions and its implications for insolvency practitioners, especially in situations where there is not enough time between appointment and termination to give the required notice.


Mr. Forsey was the sole director of USC, a company ultimately owned by Sports Direct. A notice of intent to appoint was filed on January 6, 2015. Between that date and January 11, 2015, USC removed fixtures, fittings and equipment from a warehouse it operated in Dundonald.

On January 13, directors were appointed. Mr. Palmer’s duties as co-director included employee relations. The business and assets were sold to another Sports Direct group company of which Mr. Forsey was a director on the day of his appointment, but which excluded the business and operation of the Dundonald warehouse. On January 14, employees at the Dundonald warehouse were notified of the planned layoffs. A few minutes later, they then received a dismissal letter.

Mr. Forsey had not completed the HC1 notification to the Secretary of State even when the warehouse was being dismantled and it was clear that operations would cease at the site. At the time of his appointment, Mr. Palmer did not make the notification either. He submitted the form after being invited by the severance pay department and it was received on February 4. The form was dated January 14 and he indicated that it was largely completed by that date, but that it was not finalized and submitted.

The law

Section 193 (2) of the Trade Unions and Labor Relations (Consolidation) Act 1992 (“TULRCA”) states that an employer who proposes to terminate 20 or more employees at an establishment during such a period must notify the Secretary of State in writing. , of his proposal:

(a) before giving notice of termination of an employee’s employment contract in respect of any such termination, and

(b) at least 30 days before the first of these terminations takes effect

There are similar provisions if the employer seeks to effect more than 100 redundancies in a period of 90 days, the period before the redundancies take effect being increased to 45.

Section 194 (1) of TULCRA provides that an employer who fails to give notice to the Secretary of State in accordance with section 193 commits an offense and is liable, on summary conviction, to fine not exceeding level 5 on the standard scale. It further notes in Section 193 (3) that “where it is proved that an offense under this section committed by a legal person has been committed with the consent or connivance of, or is attributable to the negligence of an administrator, director, secretary or other similar officer of the legal person, or any person claiming to act in this capacity, himself as well as the legal person are guilty of the offense and liable to be prosecuted and punished accordingly ”.

It should also be noted that section 193 (7) of the TULCRA Act states that if there are special circumstances making it impossible for the employer to comply with the requirements of paragraphs 193, he must take all necessary measures to comply. comply with this requirement that are reasonably achievable in the circumstances.

The main arguments

For the Secretary of State, it was argued that USC’s proposal to conduct mass layoffs at the Dundonald warehouse existed on at least January 8, 2015. Both Mr. Forsey and Mr. Palmer agreed, conspired or neglected to prevent failure by USC to notify the Secretary of State of proposed layoffs, contrary to Section 194 of the TULRCA. In Mr. Forsey’s case, this was the period from early January to January 13, 2015; and in the case of Mr. Palmer, from January 13 until the receipt of HR1 on February 4, 2015

The director argued that he could not be prosecuted for an offense under subsection 194 (3) because a director is not a “director, manager, secretary or other similar officer” of the society.

The court’s point of view

The court ruled that an employer does not notify the Secretary of State “if a relevant proposal is made and no notice is given, or if notice is given, but is given after the first notice of dismissal, or given less than the relevant specified period before the first termination “takes effect” ” (emphasis added).

In this case, the Secretary of State was not notified by Mr. Forsey, and the Administrator’s Notice was sent after the termination notices were issued. The offense was established. Then the court had to decide whether an administrator could be liable for this offense under section 194 TULCRA alongside Mr Forsey.

He ruled that the district judge was correct in concluding that an administrator could be prosecuted under section 194 TULCRA. It considered that a director is responsible for managing the affairs of the company and that the functions he performs are similar. No one else could give legal advice on behalf of the company once the company was under administration, except with the permission of the administrator. The administrator “unquestionably exercises a managerial function in place of the administrators, even if he only manages the orderly alienation of the company’s assets and the dismissal of the workforce”.

The tribunal considered and heard submissions on whether the special circumstances defense contained in subsection 193 (7) of the TULCRA could be raised in a situation where notice was given but there was no had insufficient time to give the full notice period before proceeding with the layoffs. This is where the judgment is of particular concern from a restructuring perspective. The court recognized that there might be circumstances in which this defense could be raised while conceding that the courts had heretofore taken a fairly restrictive view of the defense – and certainly that the insolvency itself was not a special circumstance.

Practical solutions for administrators?

The ruling highlights the tension between insolvency and labor laws.

A director must act in the best interests of creditors, which may involve making immediate terminations. However, proceeding with immediate dismissals exposes the administrator to a risk of criminal sanction.

There is no current solution that resolves this conflict (unless the law in this area is changed) which means that a proposed director can think twice before taking office if he or she has to make any layoffs. upon appointment or shortly thereafter. In most cases, when layoffs are necessary, it is impractical to give employees the full notice period as the administrator will “adopt” employees’ contracts after 14 days, which would then elevate their demands to a minimum. preferential status – which may conflict with the duties of the administrator to act in the general interest of creditors.

Often, administration results in the sale of the business and company assets, allowing all employees to transfer TUPE. In these cases, the advice to the Secretary of State is not required. But what if the sale fails at the last minute and layoffs are needed? There is no penalty for filing the HC1 form, even though there are no layoffs, and therefore worth filing just in case.

Filing a notice will not eliminate the risk entirely, and from the outset a proposed director should consider all realistic outcomes as soon as or before the appointment decision is made. If the directors choose not to give the notice prior to appointment and / or the director does not publish the notice once appointed, the director may be held liable if terminations are made then.

While the principle of notifying the Secretary of State of plans for dismissal is unlikely to affect many administrators who will already do so ex officio, the court’s reasoning for determining the construction of the offense and the question marks left to defense in special circumstances is clearly a concern that may ultimately need to be addressed by legislation.

It is rare to have the luxury of spending time in the early stages of an insolvency. Often, in order to best protect the interests of all creditors, swift action is required and truly meaningful consultation may be difficult, if not impossible. This could have an impact on the decisions of insolvency practitioners to take certain cases where this issue is at stake. It remains to be seen whether an insolvency practitioner would be convicted and punished if he gave notice but no did not authorize / was able to allow the time required by TULCRA before the employees were made redundant. Nonetheless, best advice for a director appointed above a company that has not yet supplied the HC1 and where more than 20 layoffs are expected, to send the HC1 as soon as possible giving as much notice as reasonably possible before any dismissal. It seems it would be criminal not to do so.

What is the outcome for the administrator in the Palmer case?

The case was initially heard by the district court, but proceedings were adjourned in part to allow Mr Palmer to seek judicial review to determine whether he could be responsible for the offense. In light of the findings of this case, the criminal proceedings will now continue. Unfortunately, for the administrator, forgetting the HC1 form may result in unwelcome criminal penalties. We will have to wait to see if and to what extent the criminal court imposes sanctions on Mr. Palmer.

Comments are closed.