Reassurance for administrators on criminal liability for failing to file a HR1

The welcomed ruling in R (on the application of Palmer) (Appellant) v Northern Derbyshire Magistrates’ Court and another (Respondents) [2023] UKSC 38 determined that an administrator does not fall under the definition of an “officer” of a company within the meaning of the phrase “any director, manager secretary or similar officer of the body corporate”.

Therefore, they cannot be held liable for prosecution or criminal penalties under section 194(3) Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”) for failure to provide timely notice to the Secretary of State in relation to proposed redundancies.

In essence, TULCRA imposes a duty to consult representatives of employees when a proposal involves the redundancy of 20 or more employees within a 90-day period. Additionally, there exists a statutory minimum consultation timeframe that must be adhered to. TULCRA further imposes an obligation on the employer to notify the Secretary of State regarding the proposed redundancies – in practice done by filing a form HR1 – with failure to fulfil this obligation resulting in criminal offences.

Background to the case

Mr Palmer was an administrator of West Coast Capital (USC) Limited. As frequently happens in an insolvency scenario where administrators need to make quick decisions following their appointment – making it highly unlikely that the statutory timescales can be complied with – employees were dismissed with immediate effect the following day.

No notice was given to the Secretary of State until nearly three weeks later. Mr Palmer and the company’s sole director were each charged with an offence under section 194 TULCRA. Mr Palmer sought judicial review of this decision to prosecute him as an “officer” of the company, which was ultimately considered by the Supreme Court.

The decision considered whether an administrator could be classified as an “officer of the body corporate” as defined in section 194(3) of TULCRA. The appeal was allowed and a unanimous decision reached that an administrator does not fall under the meaning of an officer in section 194(3). The court also ruled that there was no scope for extending the meaning “other similar officers” to encompass administrators.

In reaching its decision, the court noted that there is no definition of “officer” in TULCRA and so conducted a review of the numerous mentions of “officers” in the Insolvency Act 1986 (“IA”). Upon examination, it became apparent that none of these references indicated an intention that an administrator be classified as an “officer”.

Instead, certain references explicitly indicated that an administrator did not hold the status of an officer within a company. For instance, section 212 of IA made a clear distinction between an officer and an administrator of a company.

Accordingly, the court concluded that there was no intention under the IA for an administrator to be an “officer” of the company it had been appointed to.

What does this mean?

Filing a HR1 can often be impossible to comply with in an insolvency scenario where administrators have to make quick decisions in the best interests of the company’s creditors as a whole. Therefore, this decision has given comfort to administrators who now have confirmation that they cannot be personally criminally liable for failure to file a HR1 in accordance with the requirements of TULCRA.

However, this does not mean that administrators should ignore the provisions of TULCRA, and it remains best practice to file a HR1 form where possible in line with the statutory requirements, or as close to them as possible. Failure to do so can still technically leave the company open to prosecution and increases the risk of protective awards for failing to consult on redundancy – albeit this will likely be an unsecured claim in the administration.