Law Report: Workers' insolvency rights clarified
Powdrill and another v Watson and others; Talbot and another v Cadge and another. House of Lords
Thursday 23 March 1995
House of Lords (Lord Keith of Kinkel, Lord Browne-Wilkinson, Lord Mustill, Lord Woolf and Lord Lloyd of Berwick).
16 March 1995.
Under sections 19 and 44 of the Insolvency Act 1986 the administrator or receiver of a company adopted the whole of an employee's contract of employment if the employee continued in employment for more than 14 days after the appointment of the administrator or receiver, and had to give priority to liabilities under the contract incurred during the period of administration or receivership.
The House of Lords unanimously dismissed appeals by the joint administrators of Paramount Airways Ltd and the administrative receivers of Leyland Daf Ltd and Ferranti International Ltd from decisions that they had adopted contracts of employment within the Insolvency Act 1986.
The administrators and receivers who were appointed when the companies were in severe financial difficulties continued the companies' businesses as going concerns. Within two weeks of their appointment they informed the employees that they had not adopted the employees' contracts of employment with the companies. Some employees were subsequently dismissed or made redundant. They claimed that section 19, which related to administrators, and section 44, which related to administrative receivers, gave employees who continued to be employed the right to payments under their contracts of employment.
Jonathan Sumption QC, Patrick Elias QC and Mark Phillips (Wilde Sapte; Allen & Overy) for the administrators and receivers; Robin Potts QC and Richard Snowden (Burrough & Co) for the Paramount employees; Charles Purle QC and David Bean (Rowley Ashworth) for the Leyland Daf and Ferranti employees.
LORD BROWNE-WILKINSON said that if contracts were "adopted" the retained employees became entitled to super-priority, ahead not only of secured, preferential and ordinary creditors but even of the costs of administration, and in relation to receiverships, receivers became personally liable for all liabilities on contracts.
Under the Insolvency Act 1994, the liability of administrators and receivers on contracts adopted after 15 March 1994 was restricted, but the 1994 Act had no impact on contracts adopted before 15 March 1994. Adoption in sections 19 and 44 could only connote some conduct by the administrator or receiver which amounted to an election to treat the continued contract of employment with the company as giving rise to a separate liability in the administration or receivership.
The concept of adoption was inconsistent with an ability to pick and choose between different liabilities under the contract. The contract as a whole was either adopted or not. The contract of employment was inevitably adopted if the administrator or receiver caused the company to continue the employment for more than 14 days after his appointment.
Under section 19, the employees were entitled to payment in lieu of notice, including pension contributions in respect of the notice period. Liability for holiday pay referable to months of service expiring before the administrator's appointment were not incurred during the administration and the employee would only be entitled to a sum referable to the months of employment since appointment. The liability of a receiver was also restricted to liabilities incurred under the contract while he was receiver. The consequence of adoption was to give priority only to liabilities incurred during the administrator's or receiver's tenure of office.
Ying Hui Tan, Barrister
- 1 Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
- 3 World learns of app that shows you who unfriended you on Facebook, app promptly crashes
- 4 Chris Moyles reportedly set to make radio comeback with new breakfast show on XFM
- 5 The Greece debt crisis explained in less than 100 words
Florida man sentenced to two-and-a-half years for having sex on the beach in front of a child
Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
Tube strike July 2015: Is it still on? Everything you need to know about the industrial action
Eiji Tsuburaya: Godzilla co-creator honoured in today's interactive Google Doodle
Florida teacher sentenced to 22 years in prison for sexually abusing three pupils
More Britons believe that multiculturalism makes the country worse - not better, says poll
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
Sickness and disability benefits could be reduced by £30 a week as part of £12bn welfare cuts
£23000 - £27000 per annum: Recruitment Genius: A Business Analyst is required ...
£16000 - £23000 per annum: Recruitment Genius: To succeed, you will need to ha...
£8 per hour: Recruitment Genius: This is an opportunity to join an award winni...
£7 - £9 per hour: Recruitment Genius: Are you outgoing? Do you want to work in...