Puntuación del telescopio

Once a company is in administration, one of the first duties of an administrator is to inform employees about the possible claims that they may have against the company. It was held in Ex Parte James²³⁴ that an administrator has a duty to act fairly during administration as he is acting in the capacity of an officer of the court.²³⁵

Various provisions deal with employee claims during administration in respect of the ranking of employee claims and the priorities afforded to employee entitlements in terms thereof.

3.6.1 Administration expenses

As officers of the court, administrators are obliged to pay expenses of the administration which were properly incurred by the administrator in the course of his appointment during administration.

The Insolvency Rules of 2016 provide for these expenses as well as the order of priority for the payment of thereof.²³⁶ The expenses include all fees, costs, charges and other expenses incurred in the course of the administration.²³⁷ The cost of security required for the proper performance of the duties of the administrator is also regarded as an expense of the

234 (1874) Ch App 609.

235 Pollard 1995 ILJ 142; 148.

236 Chapter 10 of the Insolvency Rules of 2016 par 3.50 and 3.51.

237 Rule 3.50(1) of the Insolvency Rules 2016.

administration.²³⁸

The expenses incurred in the course of the administration are paid in the following order of priority:²³⁹

(a) expenses incurred by the administrator in performing his functions;

(b) the cost of security provided by the administrator;

(c) where an administration order was made, the cost associated with that;

(d) where the administrator was appointed otherwise as by court order, the expenses associated with that;

(e) any amount payable to a person who assisted the administrator in the preparation of a statement of affairs;

(f) any allowance made a court order for release from obligation to submit a statement of affairs;

(g) any necessary disbursements made by the administrator in the course of administration, for example expenses incurred by members of creditors’

committees and allowed by the administrator;

(h) remuneration of persons employed by the administrator to render services to the company;²⁴⁰

(i) the remuneration of the administrator; and (j) corporation tax.

The only expense relevant to employees is contained in item (h) above. Rule 3.51(2)(h)²⁴¹ provides for the remuneration of persons employed by the administrator to perform services for the company as requested or authorised under the Act or the Rules. This is very vague. It is submitted that this cannot refer to salaries of employees who is in the continued

238 Rule 3.50(3) of the Insolvency Rules 2016.

239 Rule 3.51(2) of the Insolvency Rules 2016.

240 Own emphasis. Rule 3.51(2)(h) of the Insolvency Rules 2016 provides for this remuneration of persons employed by the administrator to perform services for the company as requested or authorised under the Act or the Rules. This is very vague. It is submitted that this cannot refer to salaries of employees who is in the continued employment of the company after the administrator was appointed and whose employment contracts were adopted after 14 days. Those employment contracts are paid for as a preferential debt provided for by par 99(5) of Schedule B1 of the Insolvency Act 1986. It must refer to additional persons employed by the administrator above and beyond the original employees of the company.

241 The Insolvency Rules 2016.

employment of the company after the administrator was appointed and whose employment contracts were adopted after 14 days. Those employment contracts are paid for as a preferential debt provided for by paragraph 99 (5) of Schedule B1 of the Insolvency Act 1986.

It must refer to additional persons employed by the administrator above and beyond the original employees of the company.

3.6.2. Schedule B1 of the Insolvency Act 1986

Paragraph 99 of Schedule B1 of the Insolvency Act 1986 deals with charges and liabilities of administrators. Following the discussion of Powdrill v Watson: Paramount Airways Ltd (No 3)²⁴² above²⁴³ an analysis of paragraph 99 is necessary as it basically followed after the uncertain position brought about by the Powdrill case and the reforms made by the Insolvency Act 1994.

Although the heading of paragraph 99 is “Vacation of office: charges and liabilities” the provisions contained in this paragraph play a significant role as far as payments during administration are concerned.²⁴⁴

Paragraph 99(4) applies to a debt or liability that arose from a contract and provides that such debt will be paid out of property that the administrator had under his control.²⁴⁵ Paragraph 99(5) makes the liability created in paragraph 99(4) applicable to employment contracts. According to the interpretation of these paragraphs, a claim in terms of an employment contract during administration therefore will be paid in priority²⁴⁶ to the administrator’s remuneration.²⁴⁷ The priority created in paragraph 99(4) is limited to the payment of salary and wages²⁴⁸ in terms of an employment contract that has been adopted by the administrator after the 14-day grace period.²⁴⁹

242 [1994] 2 All ER 513; [1994] BCC 172.

243 See par 3.5.

244 Sealy and Milman Annotated Guide 580.

245 Par 99(4)(a) of Schedule B1 of the Insolvency Act 1986.

246 Par 99(4)(b) of Schedule B1 of the Insolvency Act 1986.

247 Par 99(4)(b) of Schedule B1 of the Insolvency Act 1986.

248 Par 99(6) of Schedule B1 of the Insolvency Act 1986 defined salary and wages which include accrued holiday leave; sick leave; payment in terms of social security; payment in lieu of holiday and a contribution to an occupational pension scheme.

249 Par 99(5)(a) and (c) of Schedule B1 of the Insolvency Act 1986.

Statutory liabilities such as redundancy payments and claims for unfair dismissal are not included in the meaning of salary and wages that receive priority payment.²⁵⁰ The question whether statutory payments are included in the priorities contained in paragraph 99 were addressed by the court in Re Allders Department Stores Ltd.²⁵¹

The administrators in the Allders case needed direction as to the treatment of redundancy payments which would fall due if they terminated the employment contracts of some of the employees. In determining the status of redundancy payments Collins J referred to the many legislative provisions that apply in this regard. Firstly reference was made to section 8 of the Insolvency Act 1986 which makes Schedule B1 applicable in the case of administration of a company.²⁵² The relevance of making Schedule B1 applicable to the case brings inter alia paragraph 99 into play. Although the priority of claims are set out in this paragraph, redundancy payments are not mentioned.²⁵³ The court also referred to Rule 2.76 of the Insolvency Rules.

The court ruled that redundancy payments do not have priority under paragraph 99 and that this position is not affected by Rule 2.67.²⁵⁴ The only liabilities that have priority under paragraph 99 over the administrator’s expenses are in respect of employment contracts that were adopted after 14 days of their appointment and those that qualify as “wages or salary”.²⁵⁵

The original Rule 2.76(1) was replaced with Rule 3.51 of the Insolvency Rules 2016 that lists the priority in which expenses of the administration must be paid.²⁵⁶

250Re Allders Department Stores Ltd [2005] EWHC 172 (Ch); [2005] BCC 289; Toube and Todd 2005 II 108.

Redundancy payments and claims for unfair dismissal are regulated by the Employment Rights Act of 1996, hence “statutory” liabilities.

251 [2005] EWHC 172 (Ch); [2005] BCC 289.

252 Re Allders Department Stores Ltd [2005] EWHC 172 (Ch); [2005] BCC 289.

253 Par 99(4)–99(6) of Schedule B1 of the Insolvency Act 1986.

254 Of the Insolvency Rules 1986.

255 Par 99(6) of Schedule B1 of the Insolvency Act 1986; see also Re Allders Department Stores Ltd [2005]

EWHC 172 (Ch); [2005] BCC 289 21 and 22.

256 Rule 3.51 was discussed above in par 3.6.2; Toube and Todd 2005 II 109; s 115 of the Insolvency Act 1986 and par 4.2.6.2.

The first specific reference to employee priorities is contained in rule 3.51(2)(h) that refers to the remuneration of any person employed by the administrator to perform services for the company, “as required or authorised under the Act or the Rules”. Toube and Todd agree that the priority created in this rule only applies to employees actually employed by the employer and that statutory employment liabilities cannot fall under this provision.²⁵⁷ The court has the power to alter the priority.²⁵⁸ However, this order of priority may be changed by the court if the company’s assets are insufficient to satisfy its liabilities. In such a case the court may make an order for payment of the expenses incurred in the administration process in any order that it deems fit.²⁵⁹

Rule 3.51(2)(g) prioritises “any necessary disbursements by the administrator in the course of the administration”. However, statutory liabilities for redundancy payments and payments for unfair dismissal are not included in “necessary disbursements.”²⁶⁰

To conclude the position of employee claims in administration: for the period 1986 until 1994 employees enjoyed preferent creditor status for contractual payments on termination of administration and unsecured creditor status regarding all other claims. Between 15 March 1994 and the present their claims enjoyed “super-priority” for qualified liability²⁶¹ if the employment contracts were adopted after 14 days after the appointment of the administrator.

Employees are unsecured creditors regarding all remaining claims.