Around 13,000 companies become insolvent each year and in many of these cases the best chance of saving jobs or recovering any of the investors' capital is to find a buyer for the business.

New owners can often find value in a firm where others have failed, but such rescue bids face a major barrier in the form of the new Transfer of Undertakings (Protection of Employment) Regulations 2006 (Tupe) rules. The original Tupe regulations were introduced in 1981 to protect the pay and conditions of employees upon the sale or transfer of a business.

Business recovery professionals have been warning ever since that the burdens they impose put off potential purchasers who would otherwise be willing to take on the risk of buying a failed business by imposing on them uncertain liabilities for employee debts and onerous obligations, such as pre-purchase terms and conditions with regard to employees.

So with the new Tupe regulations, which came into force on 6 April 2006, the Government attempted to address these concerns. The overriding principle under Tupe 1981 was that any kind of variation to terms and conditions in the context of a transfer was void. The new rules provide a mechanism for businesses that are subject to certain insolvency proceedings to be exempted from some of the provisions that would ordinarily apply.

They limit the transfer of certain liabilities in formal insolvency proceedings. In some cases debts to employees can be met by the National Insurance Fund (NIF). They also allow changes to be made to the employment terms.

However, far from inspiring buyers with a newfound sense of confidence, the new regulations have created widespread confusion. The main problems are that they are very badly drafted, the language vague and confusing, it is impossible to determine when exactly they apply and the Department of Trade and Industry's (DTI's) guidance contradicts the regulations. The regulations have already received serious criticism from the corporate recovery community, particularly R3, the Association of Business Recovery Professionals, which continues to lobby Parliament for them to be revoked, or at least amended.

R3 feels that the DTI ignored its consultation recommendations and argues that consequently the regulations are worded poorly and offer little or no certainty. Lord Hunt of Wirral argues that the rules both fail to specify the types of UK insolvency proceedings to which they are intended to apply and fail to make clear which liabilities will pass to a purchaser.

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