Employee's Rights on Insolvency - Court of Appeal Resolves Conflicting Authorities

In the last three weeks, the High Court has handed down two inconsistent decision on whether, when a company is in administration, liability for protective awards and payments in lieu of notice take priority (or not) over the expenses of the administration. Peter Smith J. held (27/7/05) that protective awards and PILONs take priority over the expenses of the administration. This has caused enormous panic within the insolvency community.

Two weeks later, Etherton J. (9/8/05) held that they did not take priority - reaching exactly the opposite conclusion to Etherton J..

The Court of Appeal has heard urgent appeals from both these cases and has handed down judgment.

It describes the relevant legislation as "not merely opaque; it is a most unsatisfactory piece of drafting. It is scarcely surprising that it has led to the sharp difference of opinion between two judges..." (para. 29)

Neuberger LJ, after a careful analysis of the statutory provisions, upholds Etherton J.'s decision, holding that protective awards and PILONs do not take priority over the expenses of the administration.

Re Ferrotech Ltd.