How Crystal Palace Dismissals Encouraged Corporate Rescue

Print this page Email a link to this page
twitterlinkedintwitterlinkedin

Crystal Palace FC Ltd and another v Kavanagh and others [2013]

Background

Crystal Palace Football Club (2000) Ltd (Crystal Palace) went into administration in January 2010 and the administrator, Mr Guilfoyle (Administrator) aimed to sell the football as a going concern.

In March 2010 a consortium, CPFC 2010 Ltd (CPFC) was given preferred bidder status. CPFC wished to purchase the football club and also the football stadium, Selhurst Park, which was owned by Selhurst Park, a company that was also in administration (with different administrators).

The Administrator and CPFC agreed and signed a sale and purchase agreement for the business on 24 May 2010, however this was held in escrow pending an agreement for the sale of the football stadium.

The Administrator subsequently found that the football club had severe financial difficulties and decided to “mothball” the club to keep it alive (by permitting the core operations of the football club to continue) over the closed season when no matches would be played, in the hope that it might be possible to sell the club at a later date.

The claimant employees were made redundant on 28 May 2010.

The employment tribunal initially found that the reason for the dismissals made by the Administrator was to continue to trade the business, with the ultimate objective of selling it on to a purchaser. The Administrator had run out of money and, unless staff costs were reduced, Crystal Palace would have to be liquidated. It was the Administrator’s intention to continue to conduct the business of Crystal Palace using a skeleton staff in the hope that it would be sold in the future. On this basis, the dismissals were made for an economic, technical or organisational reason (ETO reason) so liability for the claimant contracts did not pass to the football club’s ultimate purchaser, CPFC Ltd.

The Employment Appeals Tribunal (EAT) reversed the employment tribunal’s decision. Following the ruling in the case of Spaceright Europe Ltd v Baillavoine (Spaceright), the EAT held that the dismissals were not made for the purpose of continuing to trade the business (an ETO reason) as the Administrator intended to sell the football club business meaning that liability for the claimants’ contracts passed to the club’s purchaser, CPFC Ltd.

Decision

The COA held that the EAT had been wrong to reverse the employment tribunal’s original decision and ruled that the claimants’ dismissals were not automatically unfair.

The COA commented that administrators in general will almost always have a transfer of the undertaking as their “ultimate objective” but that this does not mean that the reason for dismissals made by them will automatically be to make the business more attractive to a purchaser.

The COA held in this particular instance that the reason for the dismissals was to enable the business to continue to trade until a purchaser was found. The employees were dismissed because money had ran out and not to make the business more attractive to a potential purchaser.

Commentary

The decision is good news for administrators. The decision provides a useful commentary on the interaction between TUPE 2006 and insolvency law and provides clarification of the test laid down in the case of Spaceright.

The COA commented that application of TUPE was an “intensely fact sensitive process” and it was made clear that care must be taken before characterising dismissals by an administrator as an illegitimate manipulation of the TUPE regime. It was also made clear however that administrators must not be allowed to artificially contrive ETO reasons illegitimately.

If liability for dismissals carried out by administrators are too easily transferable to purchasers there is a risk may put off potential purchasers of distressed businesses or impact on the sale price.  This most recent decision would appear to support the policy of encouraging corporate rescue.

For more information, help or advice please contact Andrew Cawkwell on 0191 211 7957.