Receivers may face sacking claims: Ruling opens door for employees to pursue payments - O&Y directors seek pounds 10m from administrators

Click to follow
The Independent Online
THOUSANDS of employees who were sacked when their companies went bust as far back as 1988 may now make claims for redundancy payments and unfair dismissal against receivers, after a surprise ruling by the Court of Appeal.

Officials from the Bank of England and the Department of Trade and Industry were holding crisis talks this week about what one accountant called a disastrous ruling.

It is understood that several directors of Olympia & York, the Canadian-based property developer that built Canary Wharf in London's Docklands, have lodged claims against Canary Wharf's administrators for over pounds 10m. The claim, which stems from golden handcuff clauses in the directors' contracts of employment, will be helped by the ruling last week. Former employees of Robert Maxwell's business empire who have lodged claims against the adminstrators will also be encouraged by the news.

The ruling, which concerned administrators' liabilities to honour employment contracts, also encourages receivers to sack the entire workforce as soon as they go into a company.

It will embarrass the Government, which is trying to improve legislation on troubled companies to promote a 'rescue culture'.

The DTI, the high street banks and the giant accountancy firms that carry out receiverships are all meeting this week to work out a solution to the crisis. It was sparked when Touche Ross, the administrators of Paramount Airways, lost its appeal last week. It has been refused leave to appeal again. Instead, Touche is considering whether to appeal to the House of Lords, which would take months.

Paramount Airways is an American airline that went into administration in 1990. It had always been assumed that administrators had a 14-day period of grace, during which they could write to employees offering them new work without taking on their old contracts of employment.

But in September 1991 two pilots in Paramount's UK division made claims against the administrators after they had been sacked. They had been kept on by the administrators for a number of months in the hope of finding a buyer, and the pilots claimed this meant their rights under their original contracts of employment still stood, despite the administrators' letters.

The pilots won their case last summer, prompting the O&Y directors into making their own claim for pounds 10m. Touche appealed against the Paramount decision and the insolvency community expected Lord Justice Dillon to support it. Instead, he found for the pilots.

Steve Hill, partner with Coopers & Lybrand, which has the biggest receivership practice in the UK, said the implications were immediate and extremely serious: 'If there's a Leyland Daf tomorrow there aren't going to be any employees 14 days later.

'The Court of Appeal has effectively repealed the 1986 Insolvency Act, because no one will use it. It's turned history back one hundred years. If a company needs help this week we may be going at it in a very strange way.'

The receivers at Leyland Daf managed to sell the business on and save 2,000 jobs, for instance, while 1,000 jobs still remain at Swan Hunter, another big recent receivership.

The DTI said yesterday: 'Clearly this matter requires very careful consideration. The judgement was only handed down last week. It's still early days.'

The Society of Practitioners of Insolvency is holding a crisis meeting today to agree its strategy. A spokesman said: 'We are very concerned and are going to be talking to a lot of people very quickly about it. Very few people have grasped how disastrous this is for ordinary working people.

'Under receivership (before the ruling) on average about half the jobs were saved.'

Barclays said it was discussing the case with its advisers and insolvency practitioners as a matter of urgency. Midland warned that the Government's proposed reforms to insolvency legislation would be blown off course by the ruling.