The Employment Appeal Tribunal has confirmed in the Secretary of State for Business and Trade v Sahonta [2025] EAT 166 that some of the usual TUPE rules may be disapplied when a company enters provisional liquidation.

Under TUPE 2006 regulation 8(7), the usual transfer principles are relaxed to facilitate the sale of a business where the transferor is subject to insolvency proceedings with a “view to liquidation of the assets”. Employees will not automatically transfer to the purchaser of a business acquired out of provisional liquidation, the purchaser will not inherit any liabilities in relation to the employees, and any dismissals will not be automatically unfair (although they may still be unfair on “ordinary” principles). Employees will also not have the usual enhanced protection against changes to their terms of employment. The aim of these provisions is to make the business and its employees more attractive to potential purchasers and to preserve jobs.

What happened in Sahonta?

Morton Rolls Limited entered a conditional transfer agreement with Phoenix Volt Ltd for the sale and transfer of its bakery business on 3 March 2023, then stopped trading immediately. 

On 7 March, a provisional liquidator was appointed in respect of Morton by HMRC petition. The provisional liquidator sent Morton’s employees a letter on 13 March advising them that their employment may have transferred to Phoenix, but if no such transfer had taken place then their employment had been terminated. On 21 March Phoenix took over operational control of the business. On 31 March, Morton entered compulsory liquidation. Morton’s former employees asserted that they were entitled to compensation from Phoenix for breach of TUPE regulations on the basis that the transfer took place before Morton entered compulsory liquidation.

The two key questions for the tribunal were:

• When did the business transfer happen for the purpose of TUPE – was it on 3 March when the deal was signed (and before Morton entered an insolvency process) or another later date?  
• Did TUPE protections apply to enable the employees to pursue claims against Phoenix?

The EAT’s decision

The Employment Appeal Tribunal found that the relevant transfer date was 21 March, when Phoenix took operational control and started trading the business, rather than the date the conditional transfer agreement was signed. By 21 March, the buyer had acquired new premises and made arrangements for the continuation of business which was not possible when the agreement was signed. This was an issue of substance over form. 

Crucially for Phoenix, the EAT also found that the appointment of provisional liquidators on 7 March triggered regulation 8(7) of TUPE. As the transfer took place on 21 March (i.e. after Morton entered provisional liquidation), the employees, and any liabilities relating to them, had not automatically transferred to Phoenix under TUPE. The employees were therefore obliged to seek compensation from the National Insurance Fund instead of pursuing claims against Phoenix.

Key takeaways

There are a number of interesting points arising from the EAT’s decision:

• Timing is everything. The relevant business transfer date will depend on when the new owner takes control of the business, not when the deal is signed.
• TUPE protections may be limited once an employer enters provisional liquidation. This means that employee claims for redundancy, arrears, and notice pay shift to the National Insurance Fund. This is good news for buyers, because it limits their risk, and means that provisional liquidators can negotiate a higher price on the sale of the business.
• Deal strategy. To limit liabilities for the buyer the business transfer should be completed once the seller is in an insolvency process.