Question marks had arisen as to whether the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) - the passing of employee liability from one company to another – was applicable in pre-packs.
Initially, a ruling in the case of Oakland vs Wellswood last November found that TUPE did not apply to a pre-pack sale, a ruling which Steven Fennell, partner at law firm Halliwells, claimed would have led to a significant increase in the number of pre-packs.
A pre-pack sale is when a company is sold by an administrator, before the administrator is officially appointed, or shortly after.
Fennell said: "If the ruling had been upheld, it would have been much better to sell an administrated company in a pre-pack deal.
"There would have been less risk, which is increased when you trade a business."
At the time, lawyers said that the ruling was made in line with the government's focus on business rescue. However, the Court of Appeal overturned the decision, arguing that administration does not terminate a contract of employment. As a result, Fennel said that there is "no advantage to a pre-pack deal".
The legal challenge is one of a number involving pre-pack administration sales in recent months.
For example, one company's lender removed the incumbent insolvency practitioner, following a pre-pack. In another case, a landlord appealed because he did not realise his tenants had changed when a pre-pack sale took place.
However, Gordon Hollerin, of law firm Semple Fraser, said that the number of appeals was because of the volume of pre-packs rather than the recently introduced SIP16 guidelines.
He added: "There has been some interest in a few cases. They may help to set out guidelines on top of SIP16.
"However, I expect that to die down. Courts don't really want to be second guessing insolvency practitioners."
Pre-pack rulings
Initial ruling employee of company not granted unfair dismissal because TUPE not recognised
Appeal ruling when an administrator sells a company, the purchaser will be liable under TUPE
Recent pre-pack appeals removal of administrator by lenders and attempt by landlord to remove third-party business from premises after pre-pack
Court of Appeal ruling 'may halt growing number of pre-packs'
The Court of Appeal has overturned a ruling made by an Employment Tribunal last year, which experts say could have led to a surge in the number of pre-pack administration sales.
