Provisional Liquidation Trumps TUPE Reg 8(7)
The Employment Appeal Tribunal (EAT) has clarified that the appointment of a provisional liquidator can constitute the commencement of terminal insolvency proceedings for the purposes of Regulation 8(7) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
This means that, in certain circumstances, employee rights do not transfer to a purchaser when a business is sold out of insolvency.
Case Summary
The case: Secretary of State for Business and Trade v Sahonta & ors EAT 166, Lady Poole; 10 November 2025, covers a number of key facts:
- Morton’s Rolls Ltd, a bakery business, became insolvent and entered compulsory liquidation.
- On 3 March 2023, Morton ceased trading and entered into a conditional business transfer agreement with Phoenix Volt Ltd.
- A provisional liquidator was appointed on 7 March 2023 following a winding-up petition by HMRC.
- The provisional liquidator informed employees that their employment may have transferred to Phoenix, but if not, it was terminated as of 7 March.
- Phoenix began reopening the business and hiring staff from 14 March.
- A winding-up order was made on 31 March 2023.
- Around 140 employees sought payments from the National Insurance Fund, claiming improper dismissal. The Secretary of State argued Phoenix was responsible for the employees under TUPE.
- The Employment Tribunal found a TUPE transfer occurred on 21 March but fell within the reg 8(7) exception because the provisional liquidator was in office, so employee rights did not transfer to Phoenix.
The Decision
The EAT upheld the Tribunal’s decision, confirming that insolvency proceedings “instituted with a view to liquidation” can begin with the appointment of a provisional liquidator—not just upon a final winding-up order. The EAT took a purposive approach, focusing on the intent behind TUPE: balancing employee protection with facilitating genuine insolvency-driven business transfers.
The EAT disagreed with previous commentary suggesting only a final winding-up order triggers reg 8(7). Since the provisional liquidator was appointed to safeguard assets for creditors and had powers related to liquidation, reg 8(7) applied from 7 March. As a result, employee rights did not transfer to Phoenix, and claims against the National Insurance Fund could proceed.
Important Points for Readers
- Provisional Liquidation as Terminal Insolvency: The appointment of a provisional liquidator can trigger the reg 8(7) TUPE exception, meaning employee rights may not transfer in a business sale during such proceedings.
- Purposive Interpretation: The EAT emphasised interpreting TUPE in line with its objectives—protecting employees while recognising genuine insolvency scenarios.
- Divergence from EU Law: The case highlights potential post-Brexit divergence between UK and EU approaches to employment protection in insolvency. While EU law may be considered as an aid to interpretation, UK courts are not bound by CJEU decisions.
- Practical Impact: Purchasers of businesses from provisional liquidation should be aware that TUPE protections for employees may not apply if reg 8(7) is engaged.
This decision provides important clarity for insolvency practitioners, employers, and employees regarding when TUPE protections will—and will not—apply in insolvency-driven business transfers.
