Can a company sell a part of its business and transfer the employees to the new business?

Shops Ltd has 3 separate shops. One limited company owns all three shops. They rent the shops from three separate landlords.

They have a good offer from B Limited to buy the shop in Cork. B Ltd will run the shop and take over the lease.

They will obviously not buy Shops Ltd but instead will buy the goodwill and lease owned by the company.

The 5 employees will transfer to becoming employees of B Limited and all their rights will be preserved under TUPE.

B Limited is "acquiring" the contingent redundancy liability of Shops Ltd. In other words, if it does not work out and they close the shop, they will have to pay the very substantial redundancy payments to the 5 employees they took over.

Would Shops Ltd have any liability to its former employees?

Could B Limited set up a new company C Limited to take over the shop so that if it does not work out, it won't be faced with large statutory redundancy payments?

No
No

Thanks Towger

So it's normal business practice for a limited company to sell part of its business and transfer its employees to a new company? The employees have to be notified but can't say "We don't want to work for the new company". Well they can say it but their only recourse would be to leave without any redundancy payments?

Yes. Google 'TUPE' for details.

Louis said:

Would Shops Ltd have any liability to its former employees?

Could B Limited set up a new company C Limited to take over the shop so that if it does not work out, it won't be faced with large statutory redundancy payments?

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To the first question, providing TUPE is done correctly, no.

In terms of the 2nd question, yes, they can set up a new company but the staff would then TUPE to that company as well.

As for what happens if staff decide not to transfer to the new company, they will be deemed to have resigned and will not be entitled to any payment, statutory or otherwise, from any company.

Louis said:

Could B Limited set up a new company C Limited to take over the shop so that if it does not work out, it won't be faced with large statutory redundancy payments?

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No. As @Peanuts20 has said, the TUPE provisions that apply from Shops Ltd to B Ltd apply equally to the move from B Ltd to C Ltd.

An accounting follow-on question to this.

Before selling its Cork shop, would Shops Ltd not already be required to have maintained a redundancy reserve account - the equivalent to a depreciation reserve account - so that it would have the means to provide redundancy payments if needed ?

On selling the business, wouldn't it only be fair that if the new owner of the Cork shop had to undertake all liabilities (including potential redundancies) that the portion of redundancy reserve accrued by/allotted to the Cork shop be passed across to the new owners of that shop ?

trajan said:

Before selling its Cork shop, would Shops Ltd not already be required to have maintained a redundancy reserve account - the equivalent to a depreciation reserve account - so that it would have the means to provide redundancy payments if needed ?

On selling the business, wouldn't it only be fair that if the new owner of the Cork shop had to undertake all liabilities (including potential redundancies) that the portion of redundancy reserve accrued by/allotted to the Cork shop be passed across to the new owners of that shop ?

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So a redundancy reserve, no, most companies would not have one. If a company was, for example, making 10% of its workforce redundant, the cost usually gets amortised across a period of years. I've never heard of a company keeping a pool of money as a "just in case" they need to lay people off for whatever reason.

As for the transfer of liability, if the purchasers know what they are doing, then they will have reviewed the risk and factored it into the purchase price. In other words, if they need to spend 100k making staff redundant that the previous owners would have had to spend, the price goes down by 100k. And if they haven't considered it, it's their problem

Peanuts20 said:

As for the transfer of liability, if the purchasers know what they are doing, then they will have reviewed the risk and factored it into the purchase price.

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Yeah. That's the real answer for sure.

Louis said:

Could B Limited set up a new company C Limited to take over the shop so that if it does not work out, it won't be faced with large statutory redundancy payments?

Click to expand...

Peanuts20 said:

In terms of the 2nd question, yes, they can set up a new company but the staff would then TUPE to that company as well.

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Salvadore said:

No. As @Peanuts20 has said, the TUPE provisions that apply from Shops Ltd to B Ltd apply equally to the move from B Ltd to C Ltd.

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B Ltd is presumably a company of substance, any sensible accountant would advise it to incorporate a subsidiary C Ltd to acquire the shops. C Ltd would have the same TUPE obligations, but if it was unable to meet them, that would not create a liability in B Ltd.