03 Jul 2012

Rangers, Liquidation and the Law

Rangers, Liquidation and the Law

Charles Green, Rangers' new owner, has reportedly claimed that under employment regulations the players will simply move from their existing employer, Rangers Football Club, to the new company, while  administrator state that contracts will roll over into a newco - but the Players' Union disagrees. Neil Fraser, Associate explains how TUPE should apply in this case.

Charles Green, Rangers' new owner, has reportedly claimed that under employment regulations the players will simply move from their existing employer, Rangers Football Club, to the new company, while  administrator state that contracts will roll over into a newco - but the Players' Union disagrees. Neil Fraser, Associate explains how TUPE should apply in this case.

Analysis

Original News

"HMRC Rejects Rangers FC Proposal for a Company Voluntary Arrangement 

The HMRC has rejected the Company Voluntary Arrangement to bring Rangers FC out of administration at a creditor's meeting this week. A spokesman for the HMRC says liquidation will best protect taxpayers as it will allow the investigation and pursuit of claims against those responsible for the company's financial situation."

How have these different interpretations of TUPE arisen?

The Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246 (TUPE) states when a business transfers from one company to another, the employees usually automatically transfer from the transferor (Oldco) to the transferee (Newco). However reg 8 modifies the manner in which the Regulations apply where the Oldco is insolvent.

Regulation 8(6) applies where insolvency proceedings are ongoing but not with a view to liquidating the assets of Oldco. Under reg 8(6) the staff and player's contracts of employment (the Contracts) would still transfer under reg 4 but some of the requirements of the Regulations would be relaxed. Regulation 8(7) applies where insolvency proceedings are being conducted with a view to the liquidation of the assets of Oldco.

Regulation 8(7) states that in such circumstances, reg 4 does not apply, ie the contracts do not transfer.

Given that Oldco is now being liquidated, I am of the view that reg 8(7) applies and the Contracts will not transfer under the Regulations. As such, I am of the view  the Contracts will not "roll over" or transfer to Newco under the Regulations. They will therefore terminate upon the liquidation of Oldco.

It may be that the different interpretations of TUPE have arisen due to confusion regarding the implications of reg 8 and the differentiation between a reg 8(6) situation and a reg 8(7) situation. This view relates only to the employment law aspects of the transfer and does not take account of the potential complications which I understand may arise in relation to the potential transfer of players Registrations with the SFA.

What are the contractual issues if players choose to leave the club "for free"?

Since reg 4 will not apply to this transfer, upon termination of their contracts with Oldco, the players and employees will be free to enter into contracts with any other party, including Newco.

If a player or employee decides to enter into a contract of employment with another club or employer, there will be no question of breach of contract since their contract with Oldco will have terminated and they will never have entered into a contract with Newco.

Regulation 4(4) usually prevents Newco from making changes to the terms of the Contracts, except in specific circumstances. However, since reg 4 does not apply to this transfer the staff and players will not benefit from any such protection. As such, Newco can offer whatever terms they choose and it will be up to the players and employees to decide whether they are prepared to enter into a new contract on those terms.

Therefore, the players and employees may consider themselves to be free from any contractual obligations to Oldco upon liquidation. I am not aware of any legal grounds on which either Oldco or Newco could challenge players who choose to leave the Club.

However it may be worth noting if it was argued that reg 8(6) as opposed to reg 8(7) applies then the players interested in leaving the Club may be well advised to protect their position by formally intimating their objection to the transfer, in order to ensure even if such an argument succeeded, their contracts with Oldco would terminate and would not transfer to Newco.

What is the advice for commercial lawyers?

It is always worth bearing in mind the implications of the Regulations in relation to the staff associated with any business transfer. It is also important to note the modification of the Regulations in the case of insolvency.

Neil Fraser, Associate

This article was originally published on the Current Awareness service on LexisLibrary on 19 June 2012.


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