TUPE and assignable contracts in an insolvent sale
Employees transfer automatically under TUPE 2006. Contracts do not. Here's how to model TUPE cost, use regulation 8 relief, and novate the contracts that actually matter to the deal.
Regulation 4 auto-transfers. Regulation 8 relief for certain accrued liabilities in true insolvency. Consult under reg 13.
Rights assign; obligations require novation. Change-of-control clauses can kill key contracts. Novate the top 10 before completion.
Regulation 8 relief — the numbers
In relevant insolvency proceedings, the following liabilities do NOT transfer to the buyer and are instead met by the Redundancy Payments Service under the Employment Rights Act 1996 Part XII:
- Arrears of pay (up to 8 weeks, capped at £719/week from April 2024).
- Statutory notice pay (up to 12 weeks depending on length of service).
- Holiday pay accrued in the last 12 months (up to 6 weeks, capped).
- Unpaid pension contributions (up to 12 months).
Everything else — future wages from completion, redundancy costs post-transfer, contractual bonuses beyond statutory caps — is inherited by the buyer.
Related
Frequently asked questions
Does TUPE apply to an administration sale?
Yes. TUPE 2006 regulation 3 applies to any 'relevant transfer' of an economic entity retaining its identity, including asset sales out of administration. Employees automatically transfer under regulation 4 on their existing terms, with continuity of service.
What does regulation 4 do?
It automatically transfers employees to the buyer on their existing terms. Any dismissal connected to the transfer is automatically unfair unless for an 'economic, technical or organisational' (ETO) reason with change in workforce, per regulation 7.
What relief does regulation 8 give buyers?
In 'relevant insolvency proceedings' (which include administration), certain accrued statutory liabilities — unpaid wages, holiday pay, notice pay up to statutory caps — do NOT transfer to the buyer. Instead they are paid by the Redundancy Payments Service under the National Insurance Fund.
What about regulation 8(6)?
Where the insolvency proceedings are 'analogous to bankruptcy' and 'with a view to liquidation', reg 8(6) can disapply reg 4 entirely — employees do NOT auto-transfer. But administration with the objective of business rescue is NOT analogous, so reg 4 applies. This is heavily litigated territory (OTG Ltd v Barke UKEAT/0320/09).
Do I have to consult employees?
Yes — regulation 13 requires consultation with elected representatives before completion. In practice the administrator handles pre-completion notification and buyer takes over post-completion. Failure to consult attracts up to 13 weeks' pay per affected employee.
Can I change terms after transfer?
Only for an ETO reason with a change in workforce. Harmonisation for its own sake is not permitted under reg 4(4). Post-transfer variations are heavily scrutinised — plan for 2+ years before making material changes.
What about pension?
Occupational pension rights do NOT auto-transfer under reg 10, but under Pensions Act 2004 s.257–258, the buyer must offer a broadly equivalent alternative. DC scheme auto-enrolment obligations DO port to the buyer.
How do contracts assign?
Rights under a contract assign; obligations require novation (three-way agreement). In practice, key customer and supplier contracts are novated on completion. The buyer sends a formal notice; the counterparty signs a deed of novation.
What if a customer refuses to novate?
Then the contract does not transfer. Sensible drafting has the seller (administrator) hold the benefit on trust for the buyer where the counterparty refuses. But if there is a change-of-control termination right, the customer can simply walk.
Are IP licences transferable?
Depends on the licence terms. Standard SaaS/software licences usually prohibit assignment without consent. Trademark licences depend on the licensor. Domain names transfer freely at registrar level with account credentials.