Boost For Potential Purchasers Of Businesses in Administration

Crystal Palace may be far from leading the way in the Premier League at present but a recent Court of Appeal judgment in Crystal Palace FC v Kavanagh & Others may lead the way to assisting businesses in administration into recovery.

CPFC went into administration in January 2010 and although there was some interest in the club, administrators struggled to sell it.  Following a 10 point deduction, CPFC narrowly avoided relegation in the 2009/10 season and in the summer the administrators made a number of employees redundant.  Those employees were deemed surplus to requirements in the close season in order to improve cash-flow.  CPFC was sold shortly afterwards and the EAT held that the dismissals were unfair dismissals on the basis that they were a reason ‘connected to the transfer’ under TUPE that was not an economic, technical or organisational (‘ETO’) reason.

The Court of Appeal has now overturned the EAT’s decision and accepted that while administrators will almost always have the transfer of the business as a going concern in mind, in this particular case the dismissals were made to enable CPFC to carry on trading.

Some caution should be taken in that there is a distinction to be drawn between where dismissals are made to enable the business to carry on trading (i.e. an ETO reason) and where they are made to make the business a more attractive proposition to potential purchasers.  It is important that purchasers of businesses and administrators take care not to contrive reasons to dismiss employees where there is in fact no ETO reason as considerable liabilities could result.  However, this decision is welcoming to those looking to purchase a business who would previously almost always have faced liability for prior dismissals.

If you are interested in buying or selling a business and would like further advice or assistance or for all other business law enquiries contact the Forbes Solicitors Business Law department or call 01254 222399.

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