Collective redundancies: Criminal liability for failure to submit an HR1 – who is at risk?

Under s193 of TULRCA, employers proposing to make 20 or more employees redundant within a 90-day period must notify the Secretary of State for Business, Energy and Industrial Strategy of this at least 30 days before the first termination. If the employer proposes to dismiss 100 or more employees, it must notify the Secretary of State at least 45 days before the first termination. It must provide this notification before it gives any employees notice of dismissal.

The employer must submit notification via the HR1 form. This is a standard template which requires the employer to disclose the nature of its business, the establishment affected, the reasons for the proposal and the dates of the first and last proposed dismissals. The form must also be served on the employee representatives for the purposes of collective consultation.

Section 194 of TULRCA sets out that an employer who fails to give notice to the Secretary of State in accordance with s193 commits a criminal offence and is liable to a fine. Section 194(3) elaborates that:

… any director, manager, secretary or other similar officer of the body corporate, or any person purporting to act in any such capacity…

will be guilty of a criminal offence and liable to prosecution if an offence under this section is committed with their consent or connivance or is attributable to their neglect.

If the Secretary of State is not notified in accordance with s193 TULRCA, both the company and its officers can therefore be criminally liable. This can be a real concern for senior officers of the company (and, as we will see, for administrators too), who have to balance their obligations to the company against their own personal risk of prosecution.

Palmer clarifies what the courts are likely to take into consideration when determining who may be liable for a failure to submit an HR1 form. The case arose from a redundancy exercise by USC, a clothing company which had gone into administration. The business was registered in England but traded predominately from Scotland. Mr Forsey was its sole registered director and Mr Palmer was appointed as one of the joint company administrators. On 14 January 2015, a brief consultation was held in USC’s Scottish warehouse and staff were given notification of their redundancy on the same day.

The HR1 form for these dismissals was not submitted until 4 February 2015. It was signed by Mr Palmer and dated 14 January 2015; in later evidence, Mr Palmer explained that the HR1 form had been completed on 14 January 2015 but had then been overlooked.

Mr Forsey and Mr Palmer were both charged with consenting to, conniving in or neglecting to prevent USC’s failure to notify the Secretary of State of the proposed redundancies. Both cases were sent to trial in North Derbyshire Magistrates Court and the men pleaded not guilty. Mr Palmer raised a judicial review of the criminal proceedings, with Mr Forsey included as an interested party. The judicial review challenged the jurisdiction of the English court in the matter and argued that Mr Palmer could not be subject to criminal proceedings because, as an administrator, he was not a director, manager, secretary or other similar officer.

At judicial review, Mr Palmer argued that while administrators do have wide powers of management, they are merely ‘agents’ of the company, not officers or managers. Administrators are appointed by the court and subject to the court’s supervisory jurisdiction. Their priority is to try to rescue the company as a going concern and, where that is not in the best interests of the creditors, they should then consider alternative resolutions. This is a very different remit from that of company directors, whose primary interests are for the welfare of the company.

Interestingly, Mr Palmer argued that assuming such liability could conflict with an administrator’s duty to act in the best interests of the creditors. For example, their duties may require an immediate release of assets in the form of redundancies but this could place them at personal risk of prosecution. Should administrators bear this burden, they would be very reluctant to take on the court appointment at all.

Mr Palmer also submitted precedents suggesting that administrator receivers are managers of the property of the company but not of the company itself. However, the court dismissed this argument, as receivers have a far more limited remit than administrators.

The judgment was given by Andrews LJ, who observed that if administrators were given immunity from prosecution, it would:

… leave a vacuum in responsibility that would fail to protect the interests of workers and, we would add, the interests of their representatives and the Secretary of State.

She noted that, in practice, this would mean that if an administrator failed to action the company’s obligations under s193, the company would be held liable but the person responsible for deciding on the redundancies and signing the notices would not. She reasoned that should this be the case:

… [t]here would be nothing to deter non-compliance, and the criminal sanction would be meaningless.

She reviewed In Re Home Treat Ltd [1991], which stated that ‘officer’ means:

… someone who holds an office, and an office in relation to the company can apply to an administrator.

The judge in that case had recognised that an administrator can be both an officer of the court and an officer of the company because in both capacities their responsibility is to manage the company’s business and property in the creditors’ interests.

With regards to the potential conflict administrators could face in exercising their duties, Andrews LJ noted that company directors may very well face the same conflict when acting in the best interests of the company. However, this would not preclude the director from facing liability under s193. She observed that, given its underlying aims, the statute must be given a purposive construction, even if that may present difficulties. She determined that in defining ‘officers’ within the meaning of TULRCA, it was Parliament’s intention to focus on the functions of the individual concerned, not on who they owe their duties to. It intended s193 to encompass anyone responsible for the day-to-day management and control of the entity, which administrators were responsible for.

She therefore concluded that administrators can be prosecuted under s194(3) of TULRCA and she dismissed the claim for judicial review.

This judgment serves as a reminder of the risks which senior company officers must balance when entering into collective consultation. Directors, managers – and now administrators – may face personal prosecution if they fail to submit an HR1 form within the prescribed time. The High Court did not rule on whether Mr Palmer and Mr Forsey were criminally liable; it only held that TULRCA does apply to administrators, so the criminal proceedings can go ahead. However, it indicates that there may be very little forgiveness for simply ‘overlooking’ the obligation to notify the Secretary of State.

As this case highlights, there is scope for conflict between a company officer’s duty to act in the best interests of the company and their own personal risk. However, given that the company may also be subject to criminal proceedings, it is arguably a united interest for the officer to ensure that the company does not commit an illegal act which could result in the prosecution of the entity and its officials. Unfortunately, this might not always be the case for administrators, as the company’s interests may not always align with the interests of its creditors.

This ruling has increased the stakes for administrators. It means they may need to make earlier decisions about collective redundancies and take more personal accountability for following the statutory procedure, particularly around the submission of an HR1. If they have inherited a situation where the directors have already decided on collective redundancies, they will need to review this decision and consider whether the plan should continue.

It will be interesting to see if further litigation brings more clarity on who else may be captured within the scope of ‘officer’ and specifically when a ‘manager’ may be at risk of personal liability, as this term is so broad. For now, this case is a helpful review of the key points that the courts will consider when they are determining who may be liable and a clear reminder of the risks company officials may face if they fail to notify the Secretary of State of proposed collective redundancies.

• In Re Home Treat Ltd [1991] BCLC 705
• R (on the application of Palmer) v Northern Derbyshire Magistrates' Court [2021] EWHC 3013 (Admin)

Anita Mulholland, 'Collective redundancies: Criminal liability for failure to submit an HR1 – who is at risk?', (February 2022 #227) Employment Law Journal.