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Protective awards provable in liquidations: Day v Haine appeal

Under our previous post Permacell Finance: judgements affecting charge holders, commentators debated the then recent High Court case of Day v Haine, in which Sir Donald Rattee held that a protective award (for the employer's failure to consult on redundancies pursuant to s189 Trade Union and Labour Relations (Consolidation) Act 1992) made after the date of liquidation is not a provable debt.

The Court of Appeal has now reversed that decision - Haine v Secretary of State for Business Enterprise & Regulatory Reform & Anor [2008] EWCA Civ 626 (11 June 2008).

The Court of Appeal's approach was that this is not essentially an insolvency issue, but rather a matter of employment law in the particular context of an EU Directive. The focus of this purposive judgement appears to be on protection of the workforce through the discouragement of failure to consult by the levy of a financial penalty on the company; and there is sympathy for the Secretary of State

"to whom are transferred the workforce's rights under the 1992 Act [and who] has no means of recouping his expenditure from the employer by proving in the company's liquidation."

What is not explicitly recognised is that any such expenditure by the Secretary of State is limited by s186 Employment Rights Act 1996, whereby each employee's maximum entitlement from the Secretary of State for all employment debts is (currently) £330 per week for eight weeks.

Is it right that the financial penalty should fall largely on creditors (and partly on the Secretary of State) in an insolvency? How will that discourage directors of going concerns who might be tempted to avoid consultation?

 

 

Date: 13th June, 2008
Author: Chris Laughton

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