Job claims 'could put accountants out of business': Firms may face pounds 1bn bill after court ruling in Paramount case, says CBI's director-general

ACCOUNTANCY firms which have been handling company insolvencies could be put out of business by claims from employees who have lost their jobs over the past seven years with firms it has been found impossible to keep afloat, the Confederation of British Industry warned today.

Accountancy firms could face claims of up to pounds 1bn, said Howard Davies, director-general of the CBI.

An amendment to a Bill due to go through today would solve matters, he added. He welcomed the Government's emergency Bill to reverse the Paramount Airways appeal court ruling, which would have forced receivers to sack thousands of employees.

But Mr Davies warned that the Bill, which will be rushed through all stages today, did nothing to protect firms from claims originating before last Tuesday, when Michael Heseltine, President of the Board of Trade, announced it.

'Many businesses depend on the availability of services from medium-sized accountancy firms,' said Mr Davies. 'It is of great concern that such firms now face the possibility of crippling claims and of going under themselves.'

The best way forward would be for today's Bill to make the changes effective from 1987, he said.

The Paramount ruling a month ago opened the way for employees kept on more than 14 days in a reconstruction to make compensation claims under their contracts of employment. Claims could stretch back to 1987, said Mr Davies.

Ian Bond, a partner with Coopers & Lybrand, which has Britain's biggest insolvency practice, said the big six accountancy firms had already started receiving claims since the Paramount ruling. The claims were for 'material sums'.

'We are not getting excessively excited about it,' he added. 'We will do everything we can to resist them. But it is clearly an active issue.'

Mr Bond added that uncertainty surrounding the ruling meant that insolvency practitioners were withholding payments to creditors, such as the high street banks, whenever there was a possibility that employees might make a claim.

Payments by receivers to the Government for PAYE and VAT owed by failed companies had also been delayed, he said.

One solution would be for the administrators involved in the Paramount case to make a further appeal to the House of Lords. Paramount's administrators, Touche Ross, are likely to make a decision whether to launch another appeal this week. But this would take several months and have no guarantee of success.

Insolvency experts are worried that the CBI may have left its lobbying too late since the Government is not planning to accept any major amendments to today's Bill.

Mr Davies added: 'Claims are most likely from directors and senior management. The directors of Olympia & York (Canary Wharf) are already reported to have lodged claims totalling pounds 10m.'

This refers to reports in the Independent last week that three former O&Y directors, Michael Dennis, Charles Young and Robert John, had lodged claims with the administrators, Ernst & Young, that they were not given sufficient notice. The trio are claiming bonuses worth roughly pounds 10m promised by O&Y's founders, the Reichmann brothers.

The City lawyers Brecher & Co also want another amendment to cover thousands of chartered surveyors, who they argue have been left exposed to claims by the Bill.

Law of Property Act (LPA) receivers are sent in on behalf of banks and building societies to recover big single assets, such as office blocks and hotels.

But today's Bill, which covers administrators and receivers under sections 19 and 44 of the Insolvency Act 1986, does not include section 37 covering LPA receivers. It is understood the Royal Institute of Chartered Surveyors is concerned over the omission.

Serena Tierney, of Brecher & Co, said: 'If the property concerned is something like a hotel the LPA receiver may want to keep it as a going concern, which means keeping staff on.'