With an increase in the number of companies going into administration comes an increase in the number of situations where agents are being asked to “help out” the new owners of the business should it be bought out of administration. But what is the legal position of an agent in this situation?
Take the case of an agent working for Company A which then goes into administration. The assets and business of Company A are acquired by Company B. In one sense there is a degree of continuity insofar as the owners and management of Company B may also be the owners and management of Company A.
During the next two to three weeks the interactions between Company B and the agent continue much as they were between Company A and the agent. Company B continues to ask questions of the agent (for example to check stock levels with certain customers.) Company B continues to include the agent in email exchanges with customers. Indications are given that the agent will be “brought on board”.
For the agent it may appear that they are on track for a resumption of what was the agency with Company A. But is this actually the true legal position?
The issues for the agent
The administration of a principal can rarely be good news for an agent. The agent will rank as an unsecured creditor for pre-administration debt. Commission earned but unpaid may result eventually in payment of a few pennies in the pound. But any hope of the agent of successfully claiming:
- back commission in the respect of unfulfilled orders;
- compensation (or indemnity) following termination of the agency as a result of Company A going into administration; and
- post-termination commission by reference to actions taken by the agent pre-administration and which would otherwise enable a claim for commission to be made,
will be lost.
Instead the agent may regard the request of Company B to “help out” as a possible lifeline for the future – in effect the prospect of a new agency.
Not so fast
Despite the request made and question asked by Company B, after two to three weeks Company B informs the agent that they have decided not to pursue the agency and, if the agent has any questions and issues, the agent will need to speak to the administrators of Company A.
The issues for the Company B
For Company B (having acquired the business and assets of Company A following its administration) to have involvement with Company A’s agent makes sense – the “customer knowledge” of the agent, the goodwill which the agent has with customers, and simply the presentation of continuity can all be helpful in ensuring that Company B makes a successful start.
The legal issues
The conduct of Company B and the agent may be such that, without anything being committed to writing, let alone said, there is established a new agency between Company B and the agent – English law does not require an agency agreement to be in writing. Instead if the agent undertakes the same type of activities for Company B which the agent was undertaking for Company A, it is likely that there is an agency agreement in place between them or that they are moving towards that position.
What will be important for the agent to show is that the agent has been authorised, post-administration to represent Company B. This is because at the heart of the definition of a commercial agent for the purposes of the Commercial Agent Regulations is a requirement that the agent has “continuing authority”. In contrast, authority given to the agent to represent the principal in a one-off transaction (or to just answer some questions relating to the prior operation of the agency with Company A) is most unlikely to amount to “continuing authority”.
It is equally important for Company B to bear in mind that the Regulations will apply to the relationship from the start of the agency. Arguments that the agency was the subject of a trial or probationary period and, therefore, the Regulations do not apply will almost certainly fail given the reported judgments of the courts.
If at some point in the future there is a parting of the ways and the agent makes a claim for compensation (or indemnity) under the Regulations, an argument by Company B that there was no agency agreement could be tested by asking the following questions:
- if, as a result of the agent’s actions or breach of fiduciary duty, Company B had suffered a loss would Company B have considered suing the agent for damages for negligence or breach of the agent’s obligation under the Regulations to act dutifully and in good faith towards Company B?
OR
- Would Company B have simply accepted that there was no legal basis to pursue the agent for the loss suffered?
So what will be the terms of the new agency?
If the conduct of Company B and the agent is consistent with the terms of the agency agreement that existed between Company A and the agent, then there could well be a presumption that such terms are the terms of the new agency agreement.
But it may also be the case that different conduct could frame the terms of the new agency agreement.
Do the Transfer of Undertakings (Protection of Employment) Regulations (Tupe) have a place to play?
TUPE applies to the transfer of business, or part of a business, situated in the UK. Whether or not there is a qualifying business transfer requires an assessment of all the factual circumstances surrounding the transaction. Subject to undertaking this assessment, it could be the case that by Company B asking the agent to “help out” and then not proceeding with the new agency that, nevertheless, the employment of the agent’s employees transfers to Company B.
Take home points
For both Company B and the agent uncertainty is to be eschewed.
It may be possible for Company B to avoid the application of the Regulations and the creation of a new agency if it should be the case that the agent is asked on an ad hoc basis on a few occasions to “help out”.
For the agent (who would prefer the relationship to be more meaningful) the onus is on them to make clear to Company B that they are acting as its agent and to hold themselves out to customers and other third parties on this basis should help to avoid uncertainty.
Even if the terms usually found in a formal agency agreement are not discussed between Company B and the agent, the latter will be able to call upon the provisions of the Regulations and the entitlements which the Regulations give to agents.
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