Mann v Secretary of State for Employment

AuthorHarry Rajak,Linda Clarke
Published date01 November 2000
Date01 November 2000
Mann vSecretary of State for Employment
Linda Clarke* and Harry Rajak**
The interrelationship between insolvency, the rights of creditors, and the particular
rights of creditors who are employees of the insolvent organisation is complex and
controversial, even at the purely domestic level. The longstanding concern of the
European Union for the welfare of employees, including employees of insolvent
employers, has made for further complexity and controversy as courts struggle
with the interpretation and application of legal principles which derive from two
different legal systems. Insolvency law has properly been described as
‘characterised by special procedures intended to weigh up the various interests
involved, in particular those of the various classes of creditors, which implies that
... there are specific rules which may derogate, at least partially, from other
provisions, of a general nature, including provisions of social law’.1
By definition, the claims of the creditors of an insolvent debtor cannot be met in
full and it is one of the chief tasks of the principles of insolvency, to establish a
hierarchy of creditors in accordance with which the inadequate resources of the
debtor are to be deployed. It is a principle of any system of insolvency that all
creditors on the highest level are to be paid in full before any payment can be made
to creditors on the next level down and so on until the money runs out. In principle,
secured creditors, that is creditors who are entitled to look for payment to the
proceeds of the sale of particular assets belonging to the debtor, will consume the
lion’s share of the debtor’s assets, leaving scraps, if anything, to the unsecured
creditors. The claims of the latter are often described as simply personal (i.e.
against the person of the debtor alone and not protected by any property owned by
the latter).
A further distinction should be observed – preferential creditors – groups of
unsecured creditors on whom statute has conferred priority over other unsecured
creditors. In the UK, the groups so preferred are essentially the government (e.g.
income tax, customs and excise and social security contributions) and employees
(in respect of unpaid remuneration and accrued holiday remuneration).2
In the United Kingdom, there is a variety of insolvency regimes in which a
debtor may be placed. Business debtors are most likely to be in the form of
companies incorporated under the Companies Acts,3and when insolvent and in the
absence of agreement among all creditors to refrain from proceedings to enforce
their claims, will be placed in liquidation or administrative receivership or
ßThe Modern Law Review Limited 2000 (MLR 63:6, November). Published by Blackwell Publishers,
108 Cowley Road, Oxford OX4 1JF and 350 Main Street, Malden, MA 02148, USA. 895
* Lecturer in Law, School of Legal Studies, University of Sussex.
** Dean School of Legal Studies, University of Sussex
1 Advocate General Van Gerven, d’Urso vErcole Marelli Elettromeccanica Generale Case C- 362/ 89
[1992] IRLR 136, 142.
2 s 386, Schedule 6, Insolvency Act, 1986 (hereafter ‘‘IA’’).
3 The current Companies Act was enacted in 1985 but like all its predecessors it defines ‘‘company’’ to
mean a company formed under the Companies Act 1985 or one formed and registered under the
former Companies Act, see s 735 (1).

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