R v Northern Derbyshire Magistrates’ Court [2023] UKSC 38

An administrator of a company in insolvency was charged under TULRCA for failing to notify the Secretary of State of redundancies. The Supreme Court held that an administrator is not an 'officer' of the company within section 194(3), applying a constitutional rather than functional test to the meaning of 'officer'.

Facts

Robert Palmer was appointed as one of three joint administrators of West Coast Capital (USC) Ltd on 13 January 2015. On the same day, the administrators sold the company’s business as a pre-pack sale, excluding the Dundonald warehouse. Employees at the warehouse were made redundant on 14 January 2015, but no notice was given to the Secretary of State until 4 February 2015. Criminal proceedings were brought against Mr Palmer under section 194(3) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), alleging that as an administrator he was an ‘officer’ of the company who had neglected to ensure compliance with the statutory notification requirements.

Issues

The central issue was whether an administrator of a company appointed under the Insolvency Act 1986 is an ‘officer of the body corporate’ within the meaning of section 194(3) TULRCA, which refers to ‘any director, manager, secretary or similar officer of the body corporate’.

Judgment

Analysis of the Insolvency Act 1986

Lord Richards, delivering the unanimous judgment, examined the Insolvency Act 1986 (IA 1986) which created and governs administration. He noted that the Act contains numerous references distinguishing administrators from officers of a company. Section 212(1) provides a clear example:

This section applies if in the course of the winding up of a company it appears that a person who (a) is or has been an officer of the company, (b) has acted as liquidator, administrator or administrative receiver of the company…

Lord Richards observed that this provision ‘very clearly distinguishes between an officer of a company and an administrator.’

Rejection of Previous Authorities

The Court considered previous decisions including In re Home Treat Ltd and In re Powertrain Ltd, which had held administrators to be officers. Lord Richards held these were wrongly decided:

In neither of these cases was there any consideration of the clear distinction drawn in the IA 1986 between administrators and liquidators on the one hand and officers of a company, on the other hand, and in my judgment, in holding that administrators and liquidators were officers of a company for the purposes of section 1157 of the Companies Act 2006 and its predecessor, they were wrongly decided.

Constitutional Test versus Functional Test

The Court rejected the Divisional Court’s ‘functional test’ which focused on whether someone had responsibility for day-to-day management. Lord Richards stated:

What then is meant by an officer of the body corporate in the context of a provision such as section 194? In my judgment, the answer is tolerably clear. It is essentially a constitutional test. Does the person hold an office within the constitutional structure of the body corporate, as is the case with directors, managers and secretaries?

Implications

This judgment clarifies that administrators appointed under the IA 1986 are not officers of the company for the purposes of criminal liability provisions such as section 194(3) TULRCA. The decision overrules previous first instance authorities and provides clear guidance that ‘officer’ should be interpreted using a constitutional test rather than a functional test based on managerial control. This has significant implications for the scope of criminal liability in insolvency situations and confirms that Parliament, if it wished to extend liability to administrators, would need to use express language such as ‘person concerned in the management’ rather than relying on the term ‘officer’.

Verdict: Appeal allowed. The Supreme Court quashed the District Judge’s decision and held that an administrator of a company appointed under the Insolvency Act 1986 is not an ‘officer of the body corporate’ within the meaning of section 194(3) of TULRCA.

Source: R v Northern Derbyshire Magistrates’ Court [2023] UKSC 38