Below are the 6 key points that you need to consider when health and safety issues arise following an appointment to an insolvent company.
1. What is the main legislation covering this area?
There are two distinct areas dealt with by detailed but separate legislation.
First, the appointment of an insolvency practitioner as liquidator, administrator or receiver. The procedure for the appointment of an administrator or liquidator is governed by the Insolvency Act 1986 ("IA") and Insolvency Rules 1986 ("IR"). The appointment of an administrative receiver will be made pursuant to the terms of the security document under which he/she is to be appointed. The powers of an administrator, liquidator or administrative receiver are set out in the IA. The appointment of a fixed charge receiver will usually be made pursuant to the terms of the security document under which he/she is to be appointed, which will also contain the powers available to the receiver, or the Law of Property Act 1925 (although these statutory provisions are very limited, and are usually extended, varied or excluded by the terms of the security document. A more detailed consideration of these is beyond the scope of this note.
Second, the Health and Safety at Work Act 1974 ("HSWA") and subordinate regulations. The HSWA sets out the broad health and safety duties which may apply in a work context, sets out the enforcement regime for ensuring duties are properly discharged and also enables subordinate legislation to be made.
There are in excess of 600 sub-ordinate regulations which have been made under the HSWA. Quite often the regulations set out prescriptive obligations which must be adhered to. The regulations fall broadly into three categories, regulations dealing with the way in which particular activities must be carried out, management of health and safety functions and then sector/industry specific issues. As such, in any given case much of the subordinate legislation will not be applicable. However, it is important in each case to be aware of what the applicable legislative framework is.
In addition, the Health and Safety Executive also publishes approved codes of practice (statutory guidance) covering a number of different health and safety issues (e.g. in respect of water quality management). Where the guidance applies, then if it is followed then the IP duty holder can be confident that he or she has discharged their obligations.
2. Why is this relevant to IP’s and their employees?
This is important to IPs and their employees for a number of reasons, the key ones of which are set out below.
- Much of the health and safety legislation is backed by criminal sanction. Thus, a failure to discharge duties properly could result in criminal liability. As IP’s take appointments personally this means it could result in personal criminal liability (against which it is not possible to be indemnified or insured against). The penalties can be significant; the Crown Court has powers to impose unlimited fines and/or up to 2 years’ imprisonment.
- Broadly speaking duties can arise in one of three ways; by operation of legislation, contractually or by conduct. Whilst it is important to understand the operation of duties imposed at law or contractually, it is particularly important for IP’s to ensure that they are not becoming subject to additional duties, either through their own conduct or that of their employees, where this could otherwise be avoided.
- There can be multiple duty holders in a health and safety context. Thus just because one of the parties or entities appears to be dealing with a particular issue the IP should still be making sure that this is not only the case but is also sufficient to discharge the IP’s own duties.
- If there are health and safety issues which have not been properly considered then this may impact upon the particular appointment in a number of ways. For example, it may mean:
- that for any assets affected by such issues that full value cannot be realised;
- that the IP and team end up having to devote significant time and resource to deal with the issue later if not properly considered at the outset; and
- the particular insolvency process is unnecessarily prolonged by the on-going health and safety issue(s).
- It could result in adverse publicity which in turn may affect the reputation of the IP concerned.
3. What type of insolvency situations do health and safety issues arise in?
There is no set scenario where a health and safety issue may arise or, indeed, a particular type of appointment where a health and safety issue is more likely. An issue could arise in any appointment:
- Fixed charge receiver;
- Administrative Receiver; or
As such, it is important that IPs are alive to health and safety issues in any appointment. This should mean that they are more likely to be able to identify and thus appropriately address the issues in a given case.
That said, there may be some circumstances where the IP, whilst still carefully considering the health and safety position, may have reason to be more confident that there will be fewer issues (such as in a "pre pack" scenario) and others where they need to be more alive to the possibility or even likelihood of there being live health and safety issues.
Particular care should be taken where:
- The business or industry sector involved is inherently dangerous or risky (such as heavy industrial, mining or energy).
- Construction work is involved, particularly where the development concerned was not fully completed before the appointment took place.
- Work involving old properties (there may be asbestos issues to address or concerns about the proper maintenance of the building).
- Work involving multi let or vacant properties (there may be common parts falling under the IP’s direct control or he/she may be responsible for the vacant units).
- The circumstances of how the appointment arose suggest that there are likely to be issues.
Whilst there is no "one size fits all" way of identifying the types of scenarios which are likely to give rise to health and safety issues, by taking these issues seriously and having a proper approach to dealing with them the IP should then be able to identify them when they do arise and then appropriately deal with them.
4. Are there any steps that an IP can take to protect themselves from liability?
There are a number of things which an IP can do. This should not only protect themselves from liability but may also ensure that the question of liability should hopefully not arise in the first place.
It is important that the IP and team are aware of their health and safety obligations, how they can arise and what they need to do when they do arise to properly discharge them. Ideally, this means that the IPs themselves and those members of their teams likely to have to deal with such issues should receive health and safety training relevant to insolvency situations. This should take account of the different nature of the appointments which may be taken and the duties which will, or are likely to, arise in those circumstances.
Before taking any appointment, the IP should carefully consider the available documentation to see if this highlights either specific issues which have already arisen or potential issues likely to arise. There may also be individuals available to speak to from whom relevant information may be obtained. This may also impact upon the team which the IP assembles to deal with the appointment.
In terms of documentation, there could be security reviews, or other documents generated by lenders, which will often contain invaluable information. There may also be surveys and other reports available with any property deeds. Again these may contain helpful information. If the appointment arises from a court application then the documents supporting that application may be helpful. In addition, if specific policies of insurance are being taken out often the insurer will survey buildings/properties and where it does then a copy of any such report may be available. If so, again it is likely to contain useful information.
Where there are specific concerns about particular properties or work activities then it may be that the IP should consider instructing a surveyor or consultant to investigate the concerns and report back on them. Again, this should not only highlight any issues so that they can be dealt with in the appropriate manner but is indicative of a responsible approach.
Where the IP is in receipt of relevant information, then she/he and the supporting team should ensure that there is a process in place to make sure that this information is used properly and where appropriate is shared with third parties. By way of example, if the IP has read asbestos surveys indicating the presence of asbestos within a property then the wider team will need to be aware of the same, including any agents or persons visiting locations with such presence. If the asbestos were in dangerous condition then that might preclude any access at all to the property or place constraints on the areas which might be inspected (and the basis any for such inspection). Equally, if in a multi-let office block concerns were highlighted in relation to fire safety issues then these might need to be shared with all of the tenants.
The most crucial step an IP can take however is to generally have proper regard to health and safety matters and then deal properly and appropriately with any issues which arise in practice. The HSE enforcement policy dealing with insolvency matters contains references to the fact that it would not usually be appropriate to look to take action against the IP themselves (there is specific reference to this in the context of receivers). If the IP is taking health and safety matters seriously then it is unlikely that the "regulator" (either the HSE or a local authority environmental health team) will seek to take formal enforcement action against the IP personally (where it has the power to do so). However, a failure to do so may have the opposite effect.
Where particular work activities are being carried out then the IP should ensure that the appropriate steps are put in place (for example, carrying out risk assessments where required or having proper method statements produced by contractors for particular works).
Finally, document whatever you decide to do. If an IP is faced with the threat of enforcement action, such as a prosecution, then the more evidence that is available to show the IP was aware of and appropriately dealt with the issue the better. Even simple things such as following up important phone calls with a confirmatory email can make a huge difference.
5. Help! – an issue has arisen, what is the first thing I should I do?
The first thing is not to panic.
Next, as much information as it is possible to obtain about the issue should be collated and reviewed. There are often several ways of dealing with a health and safety issue, each of which might be equally valid in a given situation. However, without fully understanding the issue it is hard to make a proper decision as to what should be done to deal with the problem and at the very least discharge any health and safety duties owed by the IP (and the wider team). Depending on the severity of the issue the timeframe for collating the information may have more urgency.
Where there are applicable insurance policies in place or collateral warranties etc, then the terms of those documents should be carefully considered to see what reporting obligations they contain. Where appropriate that procedure should be followed.
It may also be that primary responsibility for dealing with the issue lies with a third party (a further good reason for properly considering all the relevant information). In those circumstances, it may be that the IP fully discharges its responsibility by ensuring that it does all it can to make the third party aware of its obligation and doing all that can be done to ensure that the third party deals with the issue.
If the issue which has arisen is a serious one, such as an accident involving a fatality, then it is likely that specific specialist advice will be required. If so, that advice should be sought as soon as possible.
6. Is there anything else which may be relevant?
When dealing with health and safety issues there is no one size fits all approach. There are also often conflicting tensions which may come into play. The IP personally might wish for "x" to be done (for liability reasons) but in the context of the appointment held "y" might be more appropriate.
Equally, if an insurance claim is being made often the focus of the insurer will be mitigating its exposure to quantum in a civil liability context rather than the exposure of an IP to criminal liability.
Whilst it is not possible to obtain indemnities or insurance to cover any personal fine imposed by a court it is possible for indemnities/insurance to cover legal costs/expenses. As legal costs in such cases can be significant then such cover should be seriously considered.
Health and Safety issues when they arise can often be complex and seem difficult to unravel. Often it is not so much that it is difficult but that it will involve a lot of hard work to get to the bottom of the issue and what needs to be done.
If in doubt, seek the advice of specialist lawyers. Not only are they likely to be able to assist in developing practical solutions to problems relevant to an insolvency scenario but the fact that legal advice has been sought (and hopefully followed) should make it less likely that a regulator will seek to take enforcement action against an IP personally.
It first appeared as an "On the Edge" guide on the Lexis Nexis PSL site, in November 2014.