The effect of pre-pack administration on employees will very much depend on whether their roles are required by the new company.
Roles retained by the new company
Employees must be transferred to the new phoenix business if their positions and roles are retained by the new company.
The rules surrounding this transfer are based on European TUPE
law (Transfer of Undertakings and Permanent Employment). Under these rules, employees who’s roles are still required by the new company must be transferred. It is not negotiable to choose which employee will be employed.
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A Pre-Pack can not be used as a staff reorganisation tool
For the reason of TUPE, pre-pack administration cannot be used as a vehicle to reorganize a company’s staff without following a proper and formal redundancy process. If employees are not taken on in the new company where their positions have been maintained, then they may well have grounds to take legal action against the new phoenix company for unfair dismissal.
All the accumulated rights of transferred employees such as holidays, redundancy entitlement etc. will also be transferred to the phoenix company under TUPE law.
Roles not required by the new company
Where the new phoenix company has taken on a new form or structure and certain roles or business departments are no longer required, then these employees will not be transferred to the new business.
Employees who are left on the old company will normally face redundancy once the business is liquidated.
