Urgent meetings over insolvency: Paramount damage limitation battle goes on

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INSOLVENCY practitioners are seeking urgent meetings with the Department of Trade and Industry, the Insolvency Service, the Department of Employment and bankers to discuss how the damaging effects of the Paramount judgment last month can be mitigated, writes Peter Rodgers.

The Society of Practitioners in Insolvency also said yesterday that a decision would be taken later this month whether to appeal against the decision, which is likely to put a heavy cost burden on company rescues and force many troubled companies straight into liquidation.

The SPI said it was seeking confirmation that claims already submitted under the Employment Protection Act will not be treated as a cost of an insolvency, which appears to be one of the effects of the judgment.

The appeal court decided in the Paramount case that contracts of employment must be either adhered to or properly renegotiated. Otherwise the employees of the troubled company can make a claim against the receiver or administrator.

The let-out is that the contracts can be terminated and the employees sacked within the first 14 days of a rescue attempt. It is believed that in practice this will encourage closure rather than rescue.

The society said receivers and administrators 'should examine contracts of employment very carefully, including those of senior management which can provide for lengthy notice periods, to gauge the likely claims under the contracts'.

The SPI said it would lobby vigorously for emergency legislation to deal with the the problem in a more satisfactory way.

It added that one solution might be to use administrations instead of administrative receiverships to avoid the receivers and administrators becoming personally liable for broken employee contracts - which is thought to be one of the effects of the judgment.

It could, however, mean cutting the workforce to the bare minimum within 14 days, leaving other employees to be transferred to a new employer if the business is sold.

Insolvency experts say that the apparent benefit to employees of having their contracts honoured is far outweighed by the likelihood that a rescue will not be attempted at all and jobs will vanish.