Carluccio's Ltd ((in Administration))

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Snowden
Judgment Date13 Apr 2020
Neutral Citation[2020] EWHC 886 (Ch)
Docket NumberCase No: CR-2020-002051

[2020] EWHC 886 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INSOLVENCY AND COMPANIES LIST (ChD)

Royal Courts of Justice

Rolls Building, Fetter Lane,

London EC4A 1NL

Before:

Mr. Justice Snowden

Case No: CR-2020-002051

In the Matter of Carluccio's Limited (in administration)
And in the Matter of the Insolvency Act 1986

Felicity Toube QC and Madeleine Jones (instructed by Ashurst LLP) for the Joint Administrators

Oliver Segal QC and Stuart Brittenden (instructed by Thompsons Solicitors LLP) for Unite the Union

Hearing dates: 6–9 April 2020

Approved Judgment

Mr Justice Snowden Mr Justice Snowden

Introduction

1

On Thursday 9 April 2020, at the end of a remote video hearing that had taken place in parts over several days, I made declarations and gave directions to Geoff Rowley and Philip Reynolds of FRP Advisory, acting as Joint Administrators of Carluccio's Limited (the “Administrators” and the “Company”) under paragraph 63 of Schedule B1 of the Insolvency Act 1986 (“Schedule B1” and the “Insolvency Act”). For convenience, those directions are set out in the Annex to this judgment. I indicated at the time that I would give my detailed reasons in writing, which I now do.

2

The directions related to the legal basis upon which the Administrators might place a large number of the employees of the Company on “furlough” pursuant to the Government's proposed Coronavirus Job Retention Scheme (the “Scheme”). The Government's stated intention is that the Scheme will enable employers, including those in administration, to furlough employees whose services cannot be used due to the current COVID-19 pandemic. Furloughed employees will not be permitted to work for their employer during the period of furlough, but the employer will be able to apply for a grant from the Government to cover the cost of continuing to pay the employees 80% of their regular salary (up to a maximum of £2,500 per month).

3

The Company entered administration as a result of the impact on its business of the restrictions imposed by the Government in an effort to reduce the spread of COVID-19. The evidence is that the Company has no money with which to pay the continuing wages of its employees, and so unless it can take advantage of the Scheme, and, importantly, limit its liability for wages to the amount that it will be able to obtain in respect of the employees under the Scheme, the Administrators would be forced to make the workforce redundant. That would manifestly have a prejudicial effect on the employees and the value of the Carluccio's business which the Administrators are hoping to sell. Accordingly, shortly after their appointment, the Administrators made an offer to place the employees on furlough pursuant to the Scheme. The overwhelming majority of employees have accepted that offer, a handful have indicated that they would prefer to be made redundant and retire, and a relatively small but significant number have not yet responded.

4

The Administrators' difficulties arise because although the Scheme has been explained by the Government in broad terms in guidance published online, there has been no precise detail given of its legal structure, and specifically how the Scheme is intended to operate consistently with the insolvency legislation.

5

The urgency arises because the Administrators need to make their decisions in relation to the employees on or before Easter Monday 13 April 2020. That is the last day of the initial “safe” period of 14 days under the Insolvency Act during which the actions of the Administrators will not amount or contribute to the adoption of any contracts of employment.

6

Accordingly, in broad terms, the Administrators' application sought my determination of a number of questions of law in order to give them the assurance that if they act on the basis of those determinations they cannot subsequently be accused of having acted inappropriately in dealing with the employees and making applications under the Scheme.

7

Due to the urgency of the matter and the difficulties of liaising with employees in the current situation, it was not, however, possible to arrange for any representative employees or other interested parties to be joined to the application. As a consequence, I cannot see how my decisions and directions as to the law will actually bind any of the affected employees or the Government. Given that position and the lack of information about how the Scheme is to operate as a matter of law in an insolvency, I considered whether it was appropriate to give directions to the Administrators at all.

8

The alternative course would have been simply to leave the Administrators to follow the best advice of their lawyers, and to leave any judicial consideration of the issues until after publication of the detailed legislation giving effect to the Scheme when a case could be brought on with representative parties. It is clear, however, that the Administrators and employees do not have the luxury of time to follow that alternative course. It is obvious that, if at all possible, the Administrators should be able, without fear of subsequent criticism, to take advantage of the benefits of the Scheme by placing the Company's employees on furlough as soon as possible, provided that they believe that to be in the best interests of the administration.

9

Accordingly, I considered that the court should do what it could to give a view of legal issues to assist the Administrators. The COVID-19 pandemic is a critical situation which carries serious risks to the economy and jobs in addition to the obvious dangers to health. I think that it is right that, wherever possible, the courts should work constructively together with the insolvency profession to implement the Government's unprecedented response to the crisis in a similarly innovative manner.

10

The Administrators were represented by Ms. Toube QC and Ms. Jones. In the absence of any representative employees, or any response from the Government to requests to participate, they presented all of the rival arguments that occurred to them with conspicuous thoroughness and ability and adopted a neutral position on the outcome.

11

In addition, in the course of the hearing I received written submissions from Mr. Brittenden and subsequently heard oral submissions from Mr. Segal QC on behalf of Unite the Union (“Unite”). Unite became involved on the basis that some of its members are among the employees, and that although it had not had any time to consult with them, it would endeavour to protect their interests. I welcomed that intervention and am very grateful to Unite and its lawyers for their input, particularly on issues of employment law.

The Administration

12

The Company operates a chain of Italian restaurants. It has over 70 branches and around 2,000 employees. All of the Company's branches have been closed since 16 March 2020, when the Prime Minister advised that all restaurants should close as part of the Government's strategy for combatting the COVID-19 outbreak. Since that date, therefore, the employees of the Company who work in its restaurants have not been able to work. An administration order was made on 30 March 2020 by ICC Judge Mullen.

13

The Administrators' current strategy is to “mothball” the Company's business and, in parallel, to seek a sale of the business in order to achieve a better result for the Company's creditors than would be achieved in a winding-up under paragraph 3(1)(b) of Schedule B1. As part of this strategy, the Administrators wish to retain the Company's employees and claim for them under the Scheme rather than make them redundant. Critically, however, as I have said, they are only willing to do so if and in so far as the costs of doing so can be met by the Government under the Scheme and they do not incur any greater liabilities for the insolvent Company.

The Scheme

14

The Scheme was announced by the Chancellor of the Exchequer, the Rt. Hon. Rishi Sunak, on 20 March 2020. Having referred to the closure of public places such as restaurants, he said,

“But we don't do this lightly – we know those measures will have a significant economic impact.

I have a responsibility to make sure we protect, as far as possible, people's jobs and incomes.

Today I can announce that, for the first time in our history, the government is going to step in and help to pay people's wages.

We're setting up a new Coronavirus Job Retention Scheme.

Any employer in the country – small or large, charitable or nonprofit — will be eligible for the scheme.

Employers will be able to contact HMRC for a grant to cover most of the wages of people who are not working but are furloughed and kept on payroll, rather than being laid off.

Government grants will cover 80% of the salary of retained workers up to a total of £2,500 a month – that's above the median income.

And, of course, employers can top up salaries further if they choose to.

That means workers in any part of the UK can retain their job, even if their employer cannot afford to pay them, and be paid at least 80% of their salary.”

15

No draft legislation or regulations have yet been published in respect of the Scheme. The details of the Scheme which are known to date are contained in on-line guidance from the Government at https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme (the “Scheme Guidance”) which was first published on 26 March 2020 and updated on 4 April 2020 and then on 9 April 2020 after the conclusion of the hearing before me.

16

The Scheme Guidance is addressed to employers. It states,

...

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    • United Kingdom
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