Conversely, it presents opportunities for other care providers to pick up these contracts and continue the services Allied can no longer provide.
Opportunities can, however, bring an element of risk. The temptation for would-be buyers and transferees to rush into buying contracts where, ordinarily they would be more circumspect, is great but potentially costly in the long run.
Given the importance of human capital in the transfer of service contracts, the relaxing of some of the costly protections offered to employees under the Transfer of Undertakings (Protection of Employees) Regulations 2006 (“TUPE”), is a huge draw. Ordinarily, in the sale of a business or the transfer of a contract, the rights of transferring employees are preserved as their employment transfers to the buyer or the transferor (Regulation 4). In addition, they are protected from dismissal where that dismissal is related to the transfer (Regulation 7). The buyer, or the transferor, inherits all the rights but also the liabilities connected with the employment contracts. This is not always the case if the transferor is in financial difficulty.
Be wary however, of a key distinction...
When the transferring business is subject to “relevant insolvency proceedings”, TUPE is modified;
Relevant insolvency proceedings are described as situations where an insolvency practitioner has been appointed but the endgame is not a liquidation of the assets but rather the sale of the whole or part of the business as a going concern (BEIS Guidance).
In the eyes of the drafters of TUPE, employees should not be denied the preservation of their rights while the transferring business continues to trade and so Regulations 4 and 7 are not done away with totally.
When the transferring business is subject to “bankruptcy proceedings” or “any analogous insolvency proceedings which are instituted with a view to the liquidation of the transferor’s assets”, the picture is different:
Bankruptcy proceedings or analogous insolvency proceedings describes the situation where, under the appointment of an insolvency practitioner, the business is being liquidated and no longer able to trade.
So, when it comes to taking on contracts from a failing provider, the adage of “there is no such thing as a free lunch” could be applied! Always proceed with care, armed with comprehensive due diligence reports;
DON'T
DO
If you would like further information regarding this e-briefing or for any matters relating to TUPE, please contact Matthew Wort.
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