Enterprise and Regulatory Reform Bill

Memorandum submitted by Association of Business Recovery Professionals (R3) with Annexes A and B (ERR 18)

Introduction

1. R3 represents 97% of UK Insolvency Practitioners (IPs) - the only professionals authorised to take insolvency cases. From senior partners at the ‘Big Four’ accountancy firms to practitioners who run their own micro-businesses, our members have extensive experience of both corporate and personal insolvency.

Executive Summary

2. R3 has two principal concerns regarding the Enterprise and Regulatory Reform Bill. Firstly, we do not believe that the special circumstance of a company’s insolvency has been adequately taken into account, particularly with regard to the provisions of Part 2 relating to employment tribunals. Secondly, we view the Bill as a missed opportunity to bolster the UK business rescue culture and help to protect the UK economy from the actions of unfit company directors. Addressing these two issues would play a crucial part in delivering a key aim of the Bill – encouraging long term growth.

3. Many of the claims brought before employment tribunals relating to an insolvent company continue to be for a failure to consult adequately prior to making redundancies. This duty to consult fails to recognise the constraints that exist in an insolvency situation which often make consultation impossible. This is due not only to the limited resources available to the office holder, but also to their statutory duty to maximise returns to all creditors (including employees). Continuing to trade whilst the company’s already dire financial position further deteriorates, in order to meet redundancy consultation requirements, would put them in breach of this duty.

4. R3 strongly supports engagement with employees at the earliest possible stage in these often extremely difficult circumstances. We initiated a Memorandum of Understanding with the Insolvency Service and Jobcentre Plus to encourage IPs to inform Jobcentre Plus as soon as they know redundancies are to be made, and nearly 80,000 individuals have been supported by this initiative since it began in October 2009. Nevertheless, it is vital that the special circumstance of insolvency is recognised with regard to the duty to consult prior to making redundancies, and that this conflict between insolvency law and employment law is resolved. R3 believes that this Bill provides an appropriate vehicle to make the necessary legislative change.

5. R3 has serious concerns regarding Clause 13 and its potential impact on insolvent companies. The aim of issuing a financial penalty would seem to be to act as an additional deterrent to a company from repeating such a breach of employment law. When a company enters a formal insolvency procedure, the management is no longer in place and the cost of any financial penalty would be borne by the Estate – in effect, the creditors, including the Crown and employees in most cases. R3 therefore believes that a specific exemption should be introduced in Clause 13 for companies in formal insolvency procedures other than Company Voluntary Arrangements.

6. R3 supports the move in Schedule 17, Part 3 (enacted by Clause 54) to abolish the procedure for early discharge. This would provide further clarity for all parties over the exact term of an individual’s bankruptcy, giving a fixed deadline by which Income Payments Agreements or Orders (IPA/Os) and Bankruptcy Restrictions Orders or Undertakings (BRO/Us) must be obtained. This is likely to result in increased returns for creditors, as well as increased protection for the public.

7. R3 believes that a further amendment to this Bill could bolster the rescue culture in the UK, which is key to achieving the draft legislation’s stated aim of encouraging long-term growth, by addressing the issue of the behaviour of some suppliers towards insolvent companies. Continued supply on reasonable terms is vital for the rescue of a potentially viable business. The current situation, in which suppliers can, in the event of insolvency, charge extortionate ransom payments, move the company onto a higher tariff or withdraw supply altogether means that businesses that could otherwise be rescued in whole or in part are being liquidated. We estimate that addressing this situation by amending Section 233 of the Insolvency Act 1986 could save as many as 2,000 businesses each year.

8. R3 also believes that the Bill represents an opportunity to make the necessary changes to the Insolvent Companies (Reports on Conduct of Directors) Rules 1996, which would allow for the introduction of an electronic D1 report – a form that must be submitted by an IP in a company’s insolvency where they believe that a director is unsuitable to be concerned in the management of a company. Moving to an electronic form would reduce the administrative burden on both IPs and the Insolvency Service (IS). It would also allow for more information to be included in the report, which would in turn allow the IS to re-allocate resource from "review" to "investigation". This could increase the number of unfit directors disqualified, having stagnated in recent years due to a lack of resource in the IS, at an estimated benefit to the economy of £88,000 for each disqualification.

Employment Tribunals (Part 2)

Redundancy consultation period in insolvency

9. In relation to Part 2 of the Bill, R3 feels it is important to highlight an issue which leads to many of the claims brought before employment tribunals by employees made redundant following a company’s insolvency. We have raised this issue previously in response to the Government’s consultation in November on the collective redundancy consultation rules, but see it as wholly relevant to the provisions in this Bill, as they relate to an insolvent company. We give a short summary of the issue here, but provide a copy of our submission to the Government’s consultation, for the Committee’s attention, at Annex A.

10. Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA 1992) requires an employer who is proposing to make mass redundancies within 90 days or less to consult about the redundancies with appropriate employees’ representatives. The provisions apply where it is proposed to dismiss 20 or more employees. Where it is proposed to dismiss 100 or more employees, consultation must begin at least 90 days before the first dismissal. In other cases it must begin at least 30 days before the first dismissal. Failure to consult within the prescribed time limits can lead to a protective award being made against the employer. Section 188(7) provides that where there are exceptional circumstances making it impossible to comply, the employer shall take all such steps towards compliance as are practicable in the circumstances.

11. In an insolvency situation, by the time an IP is appointed administrator to a company, it will be in extreme financial difficulty with, by definition, little or no funds available. The administrator will make a commercial judgement over whether to continue to trade, in the hope of selling the business as a going concern. This can, of course, only be done within the available resources and it is thus likely that trading will continue for only a short time, and possibly only in the more viable parts of the business. Often, the dire financial situation of the business at the time of an IP’s appointment makes continuing to trade impossible.

12. An IP has a statutory duty to act in the interests of creditors as a whole. Were they to continue to trade a business in the knowledge that to do so would diminish the return for creditors, they would be in breach of this duty. Even any delay in action on the part of the IP in these circumstances would have a large material effect on returns to creditors. The circumstances in which an IP is usually appointed, together with this duty to act in the interests of all creditors, makes it impossible for them to comply with statutory consultation requirements. Were they to do so, it would result in dramatically reduced returns for creditors, undermining both the rescue culture and the lending environment in the UK.

13. This tension between insolvency law and employment law can be resolved by defining formal insolvency proceedings as ‘special circumstances’ under Section 188 of the TULRCA 1992. R3 believes that this Bill presents an ideal opportunity to make the necessary change.

14. IPs are keenly aware of the effects which their actions will have on employees, and endeavour to keep the workforce informed of developments and comply with consultation requirements as far as possible in the circumstances of the case. In most insolvency assignments there will be a dedicated team of staff from the IP’s office dealing with the employees, and helping them submit their claims for their statutory entitlements. R3 has initiated a Memorandum of Understanding with Jobcentre Plus and the Insolvency Service with the aim of encouraging IPs to inform Jobcentre Plus as soon as they know that redundancies are to be made, with nearly 80,000 individuals supported by this initiative since it began in October 2009.

Financial penalties

15. R3 has serious concerns about the implications of Clause 13 in the case of insolvent companies. The intention behind the granting of this power to employment tribunals appears to be for such penalties to act as an additional deterrent to the employers concerned from repeating a similar breach.

16. In the case of a company in formal insolvency, with the exception of Company Voluntary Arrangements, the company management is no longer in place. The cost of any financial penalty would instead be borne, effectively, by the company’s creditors including the Crown and, in the majority of cases, employees. This would have no effect on compliance with employment regulations and would seem entirely to contravene the intention behind the financial penalty.

17. R3 therefore believes that Clause 13 should contain an exemption for companies in insolvency proceedings, other than Company Voluntary Arrangements. Granting employment tribunals the power to issue financial penalties against insolvent companies where the management is no longer in place would harm returns to creditors, including employees, whilst having no effect at all on compliance with employment regulations.

Schedule 17, Part 3: Early discharge from bankruptcy

18. Schedule 17, Part 3 - enacted by Clause 54 of the Bill – amends the Insolvency Act 1986 to abolish the procedure for early discharge from bankruptcy. R3 strongly supports this provision, due to the clarity it provides over the duration of each bankruptcy case.

19. During the term of bankruptcy, the Trustee in bankruptcy has the ability to apply for an IPA/O, which ensures that a bankrupt individual makes a contribution to their creditors from their surplus income, both during the term of their bankruptcy and for a number of years afterwards. The IPA/O must, however, be obtained prior to the individual’s discharge from bankruptcy.

20. It is not always immediately apparent, on the commencement of the bankruptcy, whether a bankrupt has sufficient surplus income to support an IPA/O. Equally, it may be clear that an IPA/O is not possible at the outset, but a change in circumstances over the course of the term of bankruptcy could make it so.

21. The current situation, in which a bankrupt can be discharged early if the Official Receiver (OR) takes the decision to close their file, causes a lack of clarity over the deadline by which the Trustee must have applied for an IPA/O. This inevitably leads to cases where an individual would have been capable of making further contributions to their creditors, but are not required to do so because they have been discharged prior to an IPA/O being obtained.

22. Abolishing the process for early discharge from bankruptcy ensures clarity over the deadline to which all parties must work, resulting, we would expect, in more IPA/Os and thus higher returns to creditors.

Supporting business rescue

23. A key stated aim of the Bill, presented in the Explanatory Notes which accompany it, is to encourage long-term growth. R3 believes that long-term growth depends as much, if not more, on rescuing existing businesses as it does on new business start-ups. We view the Bill, if left unamended, as a missed opportunity to bolster the UK’s business rescue culture, which could be achieved through minor amendments to the Insolvency Act 1986.

24. R3 believes the Bill provides a timely opportunity to address an issue over the behaviour of suppliers towards insolvent companies. This could make a real difference to the UK rescue culture – preventing unnecessary liquidations and their attendant job losses.

25. Suppliers are a company’s lifeblood, without whom they simply cannot continue to operate. Under existing legislation, however, suppliers can currently take a number of unreasonable actions when a business becomes insolvent, including demanding extortionate ransom payments prior to continuing supply, moving the company onto a more expensive tariff or, for suppliers not listed in the Insolvency Act 1986, withdrawing their services altogether.

26. Trading a business in administration is only possible where key supplies are maintained and where resources allow. If the cost of supply increases in the event of insolvency, or supply is withdrawn altogether, it becomes more difficult and often impossible to rescue or retain value in a business through trading in administration. As a result of this situation, struggling companies that would otherwise have gone down this route are currently being forced into liquidation.

27. There is also little reason for suppliers to take such action as any charges for supply during administration are paid as a priority, and suppliers have the right to require a personal guarantee from the administrator. There is thus little risk to continuing supply during an administration – in fact, by helping to rescue the business, suppliers are increasing the possibility that it will be retained as a customer.

28. A survey of R3 members suggests that as many as 14% of businesses that are currently liquidated could be traded in administration if suppliers continued to supply on the same tariffs as they did prior to insolvency. With 16,886 liquidations in the UK last year, tackling this issue could mean that a further 2,364 companies could be traded in administration, rather than facing liquidation, each year. Not only would this increase returns to creditors in these cases, it is also likely to result in jobs saved as companies are rescued – either in whole or in part.

29. This could be achieved through amending Section 233 of the Insolvency Act 1986 preventing insolvency being used by suppliers as a sole reason for the termination of supply or increase in tariff. Suppliers would, of course, retain the right to require a personal guarantee, as well as being able to withdraw supply should payments cease.

Disqualification of unfit directors

30. When an IP is appointed as administrator or liquidator to a company, they have a statutory duty, as set out in Section 7(3) of the Company Directors Disqualification Act 1986, to make a report to the Secretary of State if they believe that the conduct of a director of that company makes them unfit to be concerned in the management of a company. How that report is to be made is set out in Rule 3 of the Insolvent Companies (Reports on Conduct of Directors) Rules 1996, including specifying in the Schedules the form that should be used to make the report (form D1).

31. Disqualifying those who are unfit to be company directors is absolutely essential to the health of our economy. The Insolvency Service (IS) estimates that for every unfit director disqualified, the economy benefits by £88,000 through avoiding the economic damage that would otherwise have been caused.

32. In recent years, the percentage of D1 reports submitted by IPs taken forward by the IS for disqualification proceedings has declined substantially, from 45% in 2002 to 27% in the last available year. In terms of the actual number of reports, the volume submitted by IPs has increased markedly from 2002, but the number taken forward has remained essentially stable. This indicates, and this is confirmed by IS, a capacity constraint both in the investigations department of the IS and in the legal department of the Department for Business, Innovation and Skills (BIS).

33. R3 understands the constraints on the resources of both BIS and the IS. Though we believe that a strong argument can be made for increased resource in this area due to the economic benefits derived from it, we are also of the view that more can be done within existing capacity if certain changes are made.

34. R3 is currently working with the IS with a view to updating the current D1 form, set out in the Schedules to the Insolvent Companies (Reports on Conduct of Directors) Rules 1996. The outcome of this work will be the issuing of new guidance from the Insolvency Service on the information required in a D1 form. We do not believe that these changes go far enough and would argue that the introduction of an electronic D1 form would be less onerous for IPs to complete – as company information could be copied across directly from Information Management Systems – and that it would also result in administrative cost savings for the IS, who would no longer have to distribute paper copies of reports by post. Crucially, as filling out the D1 form would become more efficient, it would allow IPs to input more information which would make it clearer to the IS which cases merited further action. This would allow resources within the IS to be shifted from "review" to "investigation", increasing capacity in this area, allowing more cases to be taken forward.

35. Changes to the content and format of the D1 form necessitate amending the Insolvent Companies (Reports on Conduct of Directors) Rules 1996. R3 believes that this Bill is an appropriate vehicle to make this change.

June 2012

ANNEX A

COLLECTIVE REDUNDANCY CONSULTATION RULES

Submission by the Association of Business Recovery Professionals (‘R3’) in response to the calls for evidence issued by the Department for Business Innovation and Skills in November 2011

Introduction

1.

This submission is made by the Association of Business Recovery Professionals (‘R3’) in response to the calls for evidence on the collective redundancy consultation rules. We have also responded separately to the call for evidence on the effectiveness of the TUPE Regulations.

2.

R3’s membership comprises licensed insolvency practitioners, lawyers and other professionals involved in the insolvency and turnaround industries. Over 97% of insolvency practitioners are members of R3.

3.

Our response is concerned primarily with the effects of the collective redundancy consultation rules in formal insolvency procedures, and in particular the impediments which the rules present to the efficient administration of insolvent estates for the benefit of creditors.

4.

The call for evidence on TUPE, issued in tandem with the present call for evidence, acknowledges that the present exercise is constrained by the need to implement the Acquired Rights Directive. This is also true of the collective redundancy consultation rules, which also give effect to an EC Directive. However, we believe that even within the constraints presented by the Directive there is scope for the UK government to make amendments to the law which could go some way to ameliorate some of these problems.

5.

Although the call for evidence is framed in terms of specific questions, it is necessary to set out in some detail the reasons why these provisions have caused problems in practice, and the extent to which it may be possible to ameliorate them within the limits imposed by the relevant legislation.

6.

This paper is essentially an extended answer to Question 24 in the call for evidence, ‘What special considerations relating to collective redundancy consultations arise from insolvencies?’

Summary

7.

In this submission we set out the reasons why the collective redundancy consultation rules have caused difficulties and uncertainties in the context of formal insolvency proceedings, and we argue that:

· Consideration should be given to providing by statute that formal insolvency proceedings constitute ‘special circumstances’ for the purposes of the Trade Union and Labour Relations (Consolidation) Act 1992. (Question 24)

· The UK should take advantage of a possible derogation available under the underlying Directive. (Question 24)

· Consideration should be given to taking the special circumstances of insolvency up at an EU level. (Question 24)

· The Court of Appeal decision that a protective award does not rank as an expense of the insolvency proceedings should be put on a statutory footing.

The problems in brief

8.

· Where collective redundancies are contemplated, consultation must take place with employees within certain specified time limits, unless there are special circumstances which make it impracticable. Insolvency is not a special circumstance for these purposes.

· Failure to comply with the consultation requirements can result in a protective award being made against the employer.

· In a formal insolvency it is usually not possible to comply with the consultation requirements, because of the very tight financial and time constraints within which insolvency practitioners have to operate.

· Case law has found that consultation must be ‘meaningful’ which in a formal insolvency is often impossible; there is no realistic alternative.

· The consequence is that protective awards are frequently made as a result of redundancies made by insolvency office holders. In an insolvency, the protective award will usually be paid by the government out of the National Insurance Fund, and will rank as a preferential claim in the proceedings.

· This is a drain on public funds, and reduces the amount available for the general body of creditors.

· The problem might be ameliorated by specifically making insolvency a special circumstance, or by taking advantage of a possible derogation available under the relevant underlying Directive.

The statutory provisions

9.

Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA 1992) requires an employer who is proposing to make mass redundancies within 90 days or less to consult about the redundancies with appropriate employees’ representatives. The provisions apply where it is proposed to dismiss 20 or more employees. Where it is proposed to dismiss 100 or more employees, consultation must begin at least 90 days before the first dismissal. In other cases it must begin at least 30 days before the first dismissal. Failure to consult within the prescribed time limits can lead to a protective award being made against the employer. Section 188(7) provides that where there are exceptional circumstances making it impossible to comply, the employer shall take all such steps towards compliance as are practicable in the circumstances.

10.

These provisions were implemented to give effect to Council Directive 98/59/EC on the approximation of the laws of member states relating to collective redundancies (‘the Collective Redundancies Directive’). They also address the complaints made by the European Commission that the UK had failed properly to implement an earlier version of the Directive. Neither the Directive, nor TULRCA 1992 make any provision for the circumstances of insolvency. UK case law has determined that insolvency is not on its own a special circumstance.

The situation in insolvency

11.

There are a number of problems which insolvency practitioners have to face when appointed to an insolvent business, and which affect the options available to them in dealing with employees and others affected by the insolvency.

12.

When an administrator (or other insolvency office holder) is appointed to a company, it will be because the business is already in serious financial difficulty. In many cases it will have run out of cash, or be in imminent danger of doing so. The insolvency practitioner must assess the situation and decide on the best strategy for dealing with the business within very tight time constraints. In many cases there will be some uncertainty whether a going concern sale is possible, and it is not unusual for the insolvency practitioner to keep trading to maximise the chances of this. This will be a commercial judgment which involves weighing the amount of assets being risked against the prospects and benefits of a going concern sale. In these circumstances this strategy will usually be shared with the employees.

13.

However, if the insolvency practitioner does decide to continue trading, he can only do so using the resources available within the business. In many cases this means that any ongoing trading can only continue for a short period of time. In some cases it may be necessary to close down parts of the business at an early stage in order to help preserve any viable parts. Frequently, the situation will be found to be so bad that continued trading will simply not be possible. It is important to bear in mind that this situation will have arisen before the insolvency practitioner is appointed.

14.

An administrator has a duty to carry out his functions in the interests of the creditors as a whole. If he were to continue to trade the business without good reason in a manner which diminishes the likely return to creditors he would be at risk of being in breach of this duty. This means that it is often simply not possible to continue the business for the period of time required to comply with the statutory consultation requirements. However, this is a consequence of the circumstances in which insolvency practitioners are usually appointed: it does not mean that practitioners are acting out of wilful neglect.

15.

Recent case law has merely emphasised the unsatisfactory nature of the current position. In the case of Mr CJ Byrne v Nortel UK Limited (in Administration) the Employment Tribunal made it clear that consultation should be a process of ascertaining views possibly resulting in a change of plans. At para.28 of the judgement:

‘At the employee forum meeting of 18 June 2008 the purpose of the meeting was to allow the joint administrator to present and discuss the actions to be taken and to provide the employee representatives with an opportunity to raise questions. The Tribunal takes the view that this was not meaningful consultation but it was an attempt to give information to the employees through the representatives about the redundancies. This was no consultation in the sense that it had any chance [of] altering the path which the administrators had set upon.’

16.

A similar line was taken by the Employment Tribunal in the recent case of USDAW and others v WW Realisation 1 Limited (in liquidation) and another. Despite the fact that thw administrators had provided the written information required under section 188 of TULRCA 1992, had taken steps to hold a meeting to explain the situation and receive views, and had invited employees to come forward with any further proposals of their own, the Tribunal held that there had been no genuine and meaningful consultation.

17.

In some cases it is possible to imagine that the administrator might be able to consult properly but in the majority of cases funds are likely to be limited and ‘meaningful consultation’ impossible. Although case law has determined that ‘the likely futility of consultation [was] not a special circumstance’ (Iron and Steel Trades Confederation v ASW Holdings PLC (in administrative receivership), no consideration seems to have been given to the impossibility of consulting.

18.

Insolvency practitioners are keenly aware of the effects which their actions will have on employees, and will try to keep the workforce informed of developments and comply with consultation requirements as far as possible in the circumstances of the case. In most insolvency assignments there will be a dedicated team of staff from the insolvency practitioner’s office dealing with the employees, and helping them submit their claims for their statutory entitlements. R3 has signed a memorandum of understanding with Jobcentre Plus and the Insolvency Service with the aim of encouraging insolvency practitioners to inform Jobcentre Plus as soon as they know that redundancies are to be made.

19.

However, there remains an unsatisfactory tension between insolvency law and employment law, which ministers appear to recognise, but which it is difficult to resolve. In a letter to R3 in March 2009 the Minister for Employee Relations and Postal Affairs said:

‘Although I recognise that it will not always be practicable to consult in line with the statutory obligations where a company has entered an insolvency procedure, I would ask that you engage employees and their representatives as soon as is practicable in any process that is likely to result in redundancies with a view to minimising the impact on those individuals concerned. Even where it is not possible to consult in line with the statutory obligations, I would expect you to keep employees and their representatives informed of the situation regarding their employment as soon as is reasonably possible and on a regular basis thereafter.’

20.

We believe that most insolvency practitioners act in the spirit of this guidance, but it would be more satisfactory if the problem could be resolved by legislative means.

21.

The Court of Appeal has held that where a protective award is made against the employer as a result of dismissals made during the course of an administration, liability under the award does not rank as an expense of the proceedings. The Court was fortified in its conclusions by policy considerations. See Huddersfield Fine Worsteds Limited, Ferrotech Limited and Granville Technology Group Limited ([2005] EWCA Civ 1072) and Day v Haine [2008] EWCA Civ 626

Recent experiences of R3 members

22.

A survey of 379 R3 members was conducted by ComRes between 5 and 21 December 2011. A number of respondents commented on the unworkability of the consultation requirements in a formal insolvency situation, and pointed out that substantial protective awards dilute the assets available for the ordinary unsecured creditors. A number commented that the requirement to consult can conflict with a director’s duty to act quickly to minimise potential losses to creditors. A number of respondents suggested that formal insolvency should be treated as a ‘special circumstance’ for the purposes of TULRCA 1992 – see further paragraph 24 below.

Possible solutions

23.

As noted above, the law on consultation derives from Council Directive 98/59/EC on the approximation of the laws of member states relating to collective redundancies. Article 3.1 of the Directive allows member states a limited derogation where the redundancies arise ‘from termination of the establishment’s activities as a result of a judicial decision’. The UK has not taken advantage of this derogation. It is arguable that, on the analogy of the wording used in the EC Regulation on Insolvency Proceedings, it could apply to insolvency proceedings. However, this argument might meet some resistance in the light of the recent decision of the European Court of Justice in the cases of Claes and Rémy (Cases C-235/10 to C-239/10), in which it was held that the consultation requirements of the Directive must be complied with even during the course of a liquidation, even though the relevant national legislation provided for automatic termination of employment contracts in such circumstances.

24.

An alternative approach might be to provide by statute that formal insolvency proceedings (which could be easily defined by reference to relevant sections of the Insolvency Act 1986) constitute ‘special circumstances’ for the purposes of Section 188 of TULRCA 1992. The ‘special circumstances’ defence was introduced by UK law, and does not appear in the Directive, but it appears to have been accepted by the EU. It has not been the subject of a case before the European Court of Justice, and was not mentioned among the complaints made by the Commission about the UK’s failure to implement the earlier version of the Directive mentioned above (see Case C-383/92). It would therefore appear that there is sufficient flexibility for the UK to implement such a change without contravening the terms of the Directive itself.

25.

The tension between insolvency and employment law noted above exists not only at a UK level, but also potentially at an EU level. While the obligation to consult arises by virtue of the Collective Redundancy Directive, the European Commission at the same time wants to encourage the rescue of viable businesses. See, for example, the Commission paper of October 2007 entitled Overcoming the Stigma of Business Failure – for a Second Chance Policy. More recently, DG Enterprise has been conducting a research project on rescue procedures as part of an EU project on financial restructuring of financially distressed firms. There are signs that the Commission is prepared to take note of issues which act as an impediment to business rescue: witness the amendments made to the Acquired Rights Directive discussed above, albeit inaccurately transposed into UK law. Consideration might be given to raising the conflicts caused by the consultation requirements at an EU level.

26.

Although the Court of Appeal has held that a protective award made during the course of an administration does not rank as an expense of the proceedings, it would be helpful, in order to avoid possible doubt in other cases, if this were put on a statutory footing for all types of insolvency proceedings, given the doubts arising from the Court of Appeal’s decision in Re Nortel [2011] EWCA Civ 1124.

We should be happy to discuss any of the points raised in this submission in greater detail.

ANNEX B

Suggested Amendments to the Bill

Amendments to Part 2

* Insert new clause following clause 16 (Page 12, Line 17)

17. Recognising insolvency as a special circumstance for the purposes of consultation prior to redundancies

(1) The Trade Union and Labour Relations (Consolidation) Act 1992 is amended as set out in subsection (2)

(2) In Section 188, following subsection 7(B) insert-

"For the purposes of subsection 188(7) ‘special circumstances’ shall be taken to exist where an insolvency practitioner is appointed to a company in any of the capacities specified in section 388(1) of the Insolvency Act 1986"

* Clause 13 (1), Page 9, Line 26, insert ‘and’ following "features,"

* Clause 13 (1), Page 9, Line 27, insert-

12A(c) Unless an insolvency office holder has been appointed to the employer company in any of the capacities specified in Section 388(1)(a) of the Insolvency Act 1986.

Amendment to Part 6

* Insert new clause following Clause 57, Page 47, Line 1

58. Relationship between an insolvent company and its suppliers

(1) Section 233 of the Insolvency Act 1986 is amended as set out in subsection (2)

(2) In Section 233(3)(a) after "1986" insert "or other supplier";

(3) In section 233(3)(b) after "1989" insert "or other supplier";

(4) In section 233(3)(d) after "service" insert "or other supplier";

(5) After section 233(d) insert:

"(e) a supply of computer hardware or software or infrastructure permitting electronic communications."

(6) After section 233(3) insert:

"Any provision in a contract between a company and a supplier of goods or services that purports to terminate the agreement, or alter the terms of the contract, on the happening of any of the events specified in section 233(1) is void."’

Prepared 29th June 2012