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ongoing business. On grounds of certainty there may be a case for this version of state-funded acquired rights rather than one in which proof of an ‘objective’ case for dismissal is a precondition of the National Insurance Fund’s paying for acquired rights costs rather than the transferee.80 A more pessimistic view of the IPs’ motivation might, however, suggest a tendency to take advantage of ‘tactical’ dismissals: which might involve, for example, the shedding of senior staff and replacing them with more junior personnel possessing fewer acquired rights.

Expertise

The law would contribute to the best use of employee expertise at times of trouble if it induced loyalty on the part of those employees whose expertise is necessary to ensure an efficient sale or rescue. As the law stands, however, the employees of a troubled company are confronted by all of the uncertainties described above and they will tend to be far less well equipped than transferors, IPs or transferees to assess their levels of job security or the financial risks they would run if they decided to stay with the company. From the narrow perspective of employee expertise, therefore, the case for measures to increase certainty can be made with special force. Here, again, therefore, there may be an argument for the state to bear acquired rights costs. Such a set up would, as noted, allow IPs and other involved parties to assess whether there is a case for dismissal on legitimate economic grounds. There is liable to be far greater consistency between that process of reasoning and the employee’s deliberations on his or her value to the firm than between the latter deliberations and an employee’s assessment of the security that he or she is likely to derive from the statutory and case law on acquired rights.

Accountability

Are employees given an appropriate voice within the schemes of accountability that operate in insolvency procedures? Insolvency law, together with employment law, protects that voice in a number of respects.81 First, the law on unfair dismissal requires a ‘reasonable’

80Frisby, ‘TUPE or not TUPE?’, p. 269, suggests that uncertainties involved in distinguishing ‘objective’, or justifiable, dismissals from others can be reduced by introducing a rebuttable presumption that a dismissal is not justifiable.

81See Collins et al., Labour Law, pp. 1059–69.

employer to engage in consultation with an individual employee prior to dismissal and, where the employee is represented by an independent union recognised by the employer, that reasonable employer will also give as much warning as possible to the union and consult the union as to the best way to achieve the desired result with minimum hardship to employees.82 The law on unfair dismissal thus can collectivise worker participation in decisions about economic dismissals, but this depends on there being a relevant union and an employee may not enjoy such rights if the tribunal is satisfied that the outcome would not have differed had consultation been conducted.83 A second protection derives from the Trade Union and Labour Relations (Consolidation) Act 1992 ss. 188–98 which provide that if an employer proposes to dismiss twenty or more workers at one establishment for economic reasons, he or she must consult in good time with representatives of the workforce84 with a view to agreeing ways of avoiding or reducing dismissals or mitigating the consequences of dismissal. Failure to comply with this requirement may result in a tribunal making a protective award85 to the dismissed employee.

A third source of employee process rights covering the sale of a business is TUPE. The TUPE Regulations 2006 oblige the employer (transferor and transferee) to inform affected employees’ representatives in advance about a transfer and its implications.86 The employer must consult and consider representations from a recognised trade union or (in the absence of a union) other workforce representatives with a view to seeking their agreement on intended measures affecting employees. Failure to observe these requirements to inform and consult may mean that the employer has to pay ‘appropriate’ compensation to affected employees.87 TUPE Regulation 5 also states that collective agreements shall be preserved in effect across a company transfer where those

82Williams v. Compair Maxam [1982] ICR 156 (EAT).

83Where an employer fails to act in a reasonable manner procedurally and this does not

affect the outcome, the unfairly dismissed employee will often, at the discretion of the tribunal, receive no compensation in excess of the redundancy payment (Polkey v. A. E. Dayton Services Ltd [1988] ICR 142 (HL)). This development ‘subverts the procedural protections dramatically, because the employer can usually argue extremely plausibly that workforce reductions were inevitable’: Collins et al., Labour Law, p. 1063.

84Who may be the recognised trade union or (in the absence of one) elected representatives. For an example of an award for failure to consult on redundancies as required by s. 188 see Hutchins v. Permacell Finesse Ltd (UKEAT/0350/07/CEA).

85Consisting of wages for the period during which proper consultation should have taken place.

86TUPE Regulation 13. 87 TUPE Regulation 15.

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agreements are made by or on behalf of the transferor and a trade union recognised by the transferor in respect of an employee whose contract of employment is preserved by TUPE. Trade union recognition is similarly preserved by Regulation 6.

Overall, the effect of these provisions is to give employees a voice – but, perhaps, only a modest one – in insolvency.88 As has been stated: ‘The notion that the workforce should routinely participate in managerial decisions that might affect their livelihoods seems like a distant peak on the horizon of British industrial relations … The culture of British management seems to be one of preferring to keep strategic decisions confidential and to regard business reorganisations as part of the managerial prerogative.’89

Employee rights, then, hardly impinge on the governance of insolvency processes90 but they may have some effects. The TUPE obligations of consultation are backed up by potentially punitive provisions and this creates an incentive for managers to collectivise negotiations in troubled times. This may lower the cost of planning and implementing new strategies,91 which may bring a number of further advantages.92 It may facilitate planning reorganisations. It may increase employee loyalty, by offering reassurance, and help avoid the destructive effects of industrial action. A further gain from listening to the worker voice may be that expertise and knowledge within the workforce may be tapped, so that more efficient or fairer ways of realising reorganisational objectives may be arrived at. The co-operation of the workforce may also result in financial assistance: where, for example, employees make wage concessions in an effort to make a turnaround work. Finally, there may be social gains from consultation. If employees are given advance notice of reorganisations, they may find new jobs, retrain, retire or take other steps that will lower the overall impact of an insolvency on society.

Such advantages suggest that (assuming transaction costs can be kept modest) there is a case in efficiency terms for strengthening the voice of

88See B. Cheffins, Company Law: Theory, Structure and Operation (Clarendon Press, Oxford, 1997) p. 574; Armstrong and Cerfontaine, ‘Rhetoric of Inclusion?’, p. 40.

89Collins et al., Labour Law, p. 1066.

90See Armour and Deakin, ‘Insolvency, Employment Protection and Corporate Restructuring’, p. 17.

91Collectivising negotiations may lower costs in so far as employers can deal with the unions or worker representatives rather than engage in protracted individual negotiations.

92See Collins et al., Labour Law, p. 1060.

employees within insolvency processes and reorganisation procedures. With reference to fairness also it can be argued that it is socially just to increase the voice of those parties who have committed their efforts and working lives to the enterprise.93 It is, indeed, to issues of fairness that we should now turn.

Fairness

Is insolvency law’s application of employee rights fair? In answering this question we may ask whether the acquired rights of employees should be recognised and, if they are to be recognised, who should bear the cost of compensating the employees of insolvent companies. (In this discussion we might note that the issues are similar whether the transfer is made via a liquidator, a receiver or an administrator.)94 On the recognition issue, responses may vary according to different ways of conceptualising the employee. One vision of the employee sees him or her as merely another unsecured creditor. As was seen in chapter 14, however, there is a case, even within such a vision, for giving employees rights that are superior or preferential to those of other unsecured creditors. It would be unfair, for instance, not to recognise that employees are especially high-cost risk bearers who tend to enjoy modest levels of information and have very limited abilities to adjust rates or negotiate terms so as to reflect risks.95 Such protections as are offered by the Insolvency Act 1986 section 175’s preferential treatment for employees’ accrued wages and the ‘superpriority’ given to employees’ wage and payment claims in administration under the Insolvency Act 1986 Schedule B1, paragraph 99, are, for the time being, on this view, justified.

Another approach, however, might treat the employee not as some species of unsecured creditor but as a stakeholder who has an entitlement to rights and protections that derives from his or her contribution to the assets of the company.96 That contribution, it could be argued, is

93See C. Villiers, ‘Employees as Creditors: A Challenge for Justice in Insolvency Law’ (199 9) 20 Co. L aw. 22 2

94See Davies, ‘Acquired Rights’.

95See S. S. Cantlie, ‘Preferred Priority in Bankruptcy’ in J. Ziegel (ed.), Current Developments in International and Comparative Corporate Insolvency Law (Clarendon Press, Oxford, 19 94 ).

96See Armstrong and Cerfontaine, ‘Rhetoric of Inclusion?’; G. Bastin and P. Townsend, ‘Should We Make the Redundancy Scheme Redundant?’ (1996) 17 Co. Law. 252; J. Pound, ‘The Rise of the Political Model of Corporate Governance and Corporate Control’ (1993) 68 NYU L Rev. 1003.

Employee participation is firmly entrenched in France but it has not proved a panacea for troubled companies since insolvency tends to be a small company problem and to occur where employee representation is non-existent.102 It may be the case that further steps are required to assist SMEs but proponents of the French system urge the strong ethical basis of the participatory model, as ‘social justice has an imperative quite independent of efficiency rationales’.103

If it is accepted that employees have acquired rights that should be recognised in an insolvency, who should pay? When such acquired rights are passed onto transferees who discount the prices that they pay for troubled firms, the costs of acquired rights are, as noted, liable in practice to be borne by the secured creditors of the insolvent company.104 These creditors are the parties who stand to take the lion’s share of the residual estate and they will be the first to suffer from a strict transfer of acquired rights. If, on the other hand, rights do not transfer, the state and taxpayer (through the National Insurance Fund) will compensate those employees who lose their jobs (though payments are subject, in practice, to limitations). In discussing efficiency we saw that (if low levels of ‘tactical’ dismissals can be assumed) there may be a case for state funding of acquired rights protections on the grounds that this will reduce uncertainty. Is such a solution fair to the taxpayer though?

A risk-based analysis might raise difficult questions here. It is arguable that the state is an involuntary creditor who may find it easy to spread risks but who is very ill-placed to monitor and influence risk taking and who will not reap the benefits of risk taking. It could be argued that it would be unfair to burden taxpayers for these reasons and that it would be more equitable to burden creditors with employee-related costs. Creditors, especially the banks, are, after all, not only efficient risk spreaders but they are parties who advance loans voluntarily, can adjust

court the court is obliged to hear the representations of the employees’ representatives: see Omar, ‘Position of Employees’; but see French Republic v. Klempka (administrator of ISA Daisytek SAS) [2006] BCC 841 reversing the decision of the Court of Appeal of Versailles which had accepted the argument that proceedings issues in the UK were against French public policy as they failed to protect the rights employee representatives would have had (to a hearing) under French law.

102Armstrong and Cerfontaine, ‘Rhetoric of Inclusion?’, p. 44.

103Ibid. It should be noted, though, that a shift towards strengthening the position of creditors has taken place in France: see Law 94–475 of 10 June 1994 and Omar, ‘French Insolvency Law and the 2005 Reforms’.

104And by unsecured creditors if assets are sufficient to satisfy secured creditors’ claims and leave a fund.