Welcome Relief for Officeholders as Criminal Liability Risk Question Clarified

Is an administrator of a company an "officer" of that company? The Supreme Court's answer in a recent employment judgment (with potentially broad application) was a resounding "no," which will undoubtedly reassure insolvency practitioners faced with potential criminal liability for carrying out duties conferred on an "officer" of the company.

In R (on the application of Palmer) v Northern Derbyshire Magistrates Court, the Supreme Court considered whether an administrator of a company is an “officer” of that company for the purposes of section 194(3) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), which makes a "director, manager, secretary or other similar officer" liable for offences committed by the company. The court held that the administrator was not an officer of the company and therefore could not be held criminally liable for their failure to notify the Secretary of State of post-appointment redundancies in accordance with section 194(1) of the TULRCA.

There is no definition of "officer" in the TULRCA, so the Supreme Court looked to the Insolvency Act 1986 (as the governing legislation for administration) when considering the question at issue. In doing so the court found that, of the 170 uses of the word "officer" in the Insolvency Act, none indicates that an administrator is considered to be an officer of a company. In fact, a number of instances imply the opposite (for example, section 212 of the Insolvency Act, which sets out the procedure for misfeasance claims, clearly distinguishes between an officer of a company and an administrator). As a result, it was neither the intention nor the effect of the Insolvency Act to classify an administrator as an officer of the company in administration. Furthermore, the court held that there was no scope for an expansive reading of "other similar officer" to include an administrator: an officer is someone who, in the normal and conventional sense, holds an office within the constitutional structure of the company, which an administrator does not.

What does this mean for insolvency practitioners?

Given the frequency of redundancies in administrations, the fact that administrators will not be guilty of an offence if the company fails to comply with consultation and notification obligations will be reassuring. But more broadly speaking, Palmer should bring comfort to administrators (and insolvency practitioners generally) if faced with potential criminal liability under different legislation, where similar wording to that examined by the Supreme Court in Palmer is used.

The "other similar officer" language is found in various other UK statutes. By way of example, section 37 of the Health and Safety at Work etc. Act 1974 and section 157 of the Environmental Protection Act 1990, which similarly create an offence for "other similar officer[s]" of a company, are drafted in substantively the same way as the relevant provision in the TULRCA. The court's decision in Palmer suggests that it would now be unlikely for administrators to be successfully prosecuted under section 37 and section 157 of those pieces of legislation. The Environmental Permitting (England and Wales) Regulations 2016 is another example of legislation that contains similar language. Whilst section 41 of those Regulations is drafted slightly differently to the TULRCA provisions at issue in Palmer; applying the constitutional test favoured by the court, it would also appear unlikely that administrators could be successfully prosecuted under this section.

Nevertheless, notwithstanding Palmer, administrators have separate duties and obligations to act within their statutory framework as officers of the court, and the company to which administrators are appointed could of course still incur significant fines for non-compliance with any relevant legislation. Legislation should therefore be considered on a case-by-case basis and administrators should act in accordance with any statutory framework that is applicable in the circumstances.

Is there anything else to note?

Although a welcome judgment, it is worth noting that following Palmer, a related line of authority that was occasionally helpful to insolvency practitioners is no longer good law. In In re Powertrain Limited, the High Court classed a liquidator as an officer of a company for the purposes of section 1157 of the Companies Act 2006 (which permits the court to relieve an officer of a company from liability if (i) they acted honestly and reasonably; and (ii) the court considers that they should be excused from liability) in order to relieve the liquidator from liability. Whilst that avenue is no longer available to insolvency practitioners, we expect that, as a matter of public policy, the court would be open to finding another route to the same destination if appropriate.

Authors: Andrew Clarke, Senior Associate (Restructuring and Special Situations) and James Nierinck, Senior Associate (Planning and Environment)