Administrators go to Lords to lift threat of 1bn pounds in claims: Last-ditch appeal to make Paramount Airways emergency bill retrospective

THE administrators of Paramount Airways are launching an appeal to the House of Lords in a last-ditch attempt to overturn the court ruling last month that exposed insolvency practitioners to an estimated pounds 1bn of claims from former employees of failed companies.

The appeal is needed because after the Government yesterday rejected attempts to backdate its emergency bill on the ruling to before 15 March 1994, the day after Michael Heseltine, the President of the Board of Trade, announced the legislation.

Although the bill has been rushed through the Commons and Lords in the past two days, and will receive Royal Assent today, it leaves insolvency practitioners with serious problems.

The trouble started a month ago when the Appeal Court ruled that administrators and receivers are liable to claims by employees under their contracts of employment if they have been kept on by the insolvency practitioners for more than two weeks. This reversed another court decision in 1987, which had provided ground rules for accountants trying to rescue failed companies.

Last month's ruling would have forced receivers to sack an entire workforce within 14 days of going in, to avoid claims from employees for which the receivers would have been personally liable. It also opened the way for employees to make contractual claims on receivers dating back to 1986.

The Government's emergency bill has rectified the first problem but leaves the second one in place. Lord Reay, the Conservative peer, yesterday tabled an amendment to backdate the bill to 1986, but the Government rejected it on the grounds that retrospective legislation is unconstitutional.

Lord Ezra for the Liberal Democrats also tried and failed to extend the bill to cover Law of Property Act (LPA) receivers, who secure large single assets such as hotels and office blocks on behalf of banks and building societies. LPA receivers are not mentioned in the bill, which may cause problems for lenders to failed property companies.

The uncertainty can be cleared up if the Paramount administrators succeed in their further appeal to the Lords. Roger Powdrill of Touche Ross, one of Paramount's administrators, said last night that it will take about two weeks to gain leave of appeal from the appellate committee.

'It is then a question of whether they expedite it in the public interest. We just don't know what attitude they will take,' he said.

Much rests on whether the Lords decide to take into account the intention of Parliament when it passed the original insolvency legislation in 1986.