West Law Report

Status of protective award in company’s liquidation

Posted in Times Law Report by mrkooenglish on July 22, 2008

From The TimesJuly 22, 2008

Status of protective award in company’s liquidation
Court of Appeal

Published July 22, 2008

Day v Haine and Another

Before Lord Justice Thomas, Lord Justice Jacob and Lord Justice Wall

Judgment June 11, 2008

Protective awards made by an employment tribunal following the failure of a company to comply with its statutory obligation to consult concerning collective redundancies before going into liquidation were contingent debts of the company and therefore provable debts in the liquidation.

The Court of Appeal so stated allowing the appeals of Ronald Benjamin Haine, as a representative of the former employees of Compound Sections Ltd entitled to the benefit of protective awards made by an employment tribunal on August 31, 2006, and the Secretary of State for Business Enterprise and Regulatory Reform from the decision of Sir Donald Rattee, sitting as Chancery Division judge ( The TimesDecember 28, 2007) who had held that protective awards made under section 189(2) of the Trade Union and Labour Relations (Consolidation) Act 1992 did not constitute debts provable in the liquidation of the company within the meaning of the Insolvency Rules (SI 1986 No 1925). The respondent was Robert Day, liquidator of Compound Sections. The secretary of state was added as a party at his own request as he had an interest in the directions sought by the liquidator.

Mr Arfan Khan for the employee; Mr Richard Ritchie for the secretary of state; Mr Alaric Watson for the liquidator.

LORD JUSTICE WALL, giving the judgment of the court, said that the question was whether the provisions of the 1992 Act could be properly construed so as to fulfil and enact into English law the provisions of Council Directive 98/59/EC on the approximation of the laws of member states relating to collective redundancies (OJ August 12, 1998 No L225/16).

The United Kingdom had a duty under European law to take all measures necessary to ensure that infringements of European law were penalised under conditions which made the penalty effective, proportionate and dissuasive.

On the judge’s analysis, employers were able wholly to escape from the liability which Parliament imposed upon them; added to which the secretary of state, to whom were transferred the workforce’s rights under the 1992 Act, had no means of recouping his expenditure from the employer by proving in the company’s liquidation.

The judge had regarded himself as bound by Glenister v Rowe ([2000] Ch 76) and R (Steele) v Birmingham City Council ([2006] ICR 869).

The appeal should be allowed for two interlinked reasons: (i) as a matter of language, the liability to pay a protective award stemmed from the preliquidation breach of obligation, and (ii) given the complete breach of the obligation to consult, the employment tribunal realistically did not have a discretion to refuse an award.

An employment law analysis of the case, based on Directive 98/59/EC and Susie Radin Ltd v GMB ([2004] ICR 893), provided a powerful basis upon which to distinguish both Glenister and Steele.

Solicitors: Thompsons; Treasury Solicitor; Darbys, Oxford.

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