Re Allders Department Stores Ltd and other companies

JurisdictionEngland & Wales
JudgeMr Justice Lawrence Collins
Judgment Date16 February 2005
Neutral Citation[2005] EWHC 172 (Ch)
Docket Number532, 533 and 783 of 2005
CourtChancery Division
Date16 February 2005

[2005] EWHC 172 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand

London WC2A 2LL

Before

Mr Justice Lawrence Collins

532, 533 and 783 of 2005

In the Matter Of
Allders Department Stores Limited (In Administration)
Allders Stores Limited (In Administration)
Allders Limited (In Administration)
And in the Matter Of

Mr Richard Sheldon QC and Miss Felicity Toube

(instructed by DLA Piper Rudnick Gray Cary UK LLP) for the Administrators

Mr William Trower QC for the Attorney General

APPROVED JUDGMENT

Hearing: February 10, 2005

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Lawrence Collins

()

Mr Justice Lawrence Collins

I Introduction

1

This is an application by the Administrators of companies in the Allders Department Stores group ("the Companies"). The appointment in relation to Allders Stores Ltd and Allders Department Stores Ltd was made on January 26, 2005, and in relation to Allders Ltd on February 4, 2005. The Administrators of the Companies seek directions in relation to the treatment of redundancy payments which will be due if the Administrators terminate the contracts of certain employees of the Companies. The position of the Insolvency Service of the Department of Trade and Industry is that all statutory employment payments, including unfair dismissal payments, are payable as expenses of the administration, and Mr William Trower QC has appeared for the Attorney General to argue that position.

2

The Administrators propose to treat certain liabilities to employees as preferential in part under the provisions of Schedule 6 to the Insolvency Act 1986 ("the 1986 Act"), and give the relevant liabilities priority under the 1986 Act, Schedule B1, paragraph 99. As to the balance of the sums which will be due to employees, and in particular the bulk of those sums due by way of redundancy payments or unfair dismissal payments, these liabilities will be unsecured claims in the administration and any eventual liquidation.

3

The Administrators seek directions and a declaration that any statutory liabilities for redundancy or unfair dismissal due to employees of the Companies following termination of their employment are not required to be paid as an expense of the Administration whether under Rule 2.67(1)(f) of the Insolvency Rules or otherwise.

4

The matter came on in the applications court on February 10, 2005, and at the conclusion of the hearing I indicated that I would give directions in the sense for which the Administrators contended, with reasons to be given later.

II The arguments

5

The arguments were mainly concerned with redundancy payments, although most of the same considerations apply to unfair dismissal claims. Mr Richard Sheldon QC argued for the Administrators that redundancy payments are not to be regarded as expenses because (a) the effect of paragraph 99 of Schedule B1 to the 1986 Act is that liabilities which have been adopted by the administrator and which are "wages or salary" are payable prior to the administrator's expenses; (b) "wages or salary" do not include redundancy payments; (c) the effect of paragraph 99 is not altered by the general expenses provisions in Rule 2.67 of the Insolvency Rules; (d) in particular, redundancy payments are not "necessary disbursements" by the administrator in the course of the administration for the purposes of Rule 2.67(1)(f) or the "remuneration or emoluments of any person who has been employed by the administrator to perform any services for the company;" and (e) special provision is made for the preferential position of "remuneration under a protective award under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 (redundancy dismissal with compensation)": 1986 Act, Schedule 6, paragraph 13(2).

6

The argument of Mr William Trower QC for the Attorney General was as follows: (a) under Rule 2.67(1)(f) of the Insolvency Rules necessary disbursements by the administrator in the course of the administration are payable as an expense; (b) Rule 2.67(1)(f) mirrors Rule 4.218(1)(m) (liquidation), in relation to which it was held in Re Toshoku [2002] UKHL 6, [2002] 1 WLR 671 (HL) that if the company incurred an obligation post liquidation for which the creditor cannot prove, it will be a necessary disbursement; (c) the liability for redundancy/unfair dismissal is a liability incurred by the company post-liquidation, and is not provable in the administration, because it is not a liability to which the company may become subject after the commencement of the administration by reason of an obligation incurred before that date (Rule 13.12(1), applied by Rule 13.12(5) to administration), because liabilities for redundancy/unfair dismissal are not liabilities arising out of the contracts of employment.

III Legislation

Insolvency Act 1986, section 8 and Schedule B1

7

Section 8 of the 1986 Act provides that Schedule B1 shall have effect in relation to the administration of companies.

8

By paragraph 65(1) of Schedule B1 the administrator may make a distribution to a creditor, subject to compliance with the rules as to preferential debts: para 65(2). But permission of the court is required to make a distribution to a creditor who is neither secured nor preferential.

9

When a person ceases to be an administrator, the former administrator's "remuneration and expenses" shall be charged and payable out of the property of which the administrator had custody or control immediately before cessation, and payable in priority to floating charges: para. 99(3).

10

Paragraphs 99(4), (5), and (6) provide:

"(4) A sum payable in respect of a debt or liability arising out of a contract entered into by the former administrator or a predecessor before cessation shall be—

(a) charged on and payable out of property of which the former administrator had custody or control immediately before cessation, and

(b) payable in priority to any charge arising under sub-paragraph (3).

(5) Sub-paragraph (4) shall apply to a liability arising under a contract of employment which was adopted by the former administrator or a predecessor before cessation; and for that purpose—

(a) action taken within the period of 14 days after an administrator's appointment shall not be taken to amount or contribute to the adoption of a contract,

(b) no account shall be taken of a liability which arises, or in so far as it arises, by reference to anything which is done or which occurs before the adoption of the contract of employment, and

(c) no account shall be taken of a liability to make a payment other than wages or salary.

(6) In sub-paragraph (5)(c) 'wages or salary' includes—

(a) a sum payable in respect of a period of holiday (for which purpose the sum shall be treated as relating to the period by reference to which the entitlement to holiday accrued),

(b) a sum payable in respect of a period of absence through illness or other good cause,

(c) a sum payable in lieu of holiday,

(d) in respect of a period, a sum which would be treated as earnings for that period for the purposes of an enactment about social security, and

(e) a contribution to an occupational pension scheme."

11

Prior to the amendment of section 19 of the 1986 Act by the Insolvency Act 1994, section 19(5) provided: "Any sums payable in respect of debts or liabilities incurred, while he was administrator, under contracts entered into or contracts adopted by him … in the carrying out of his … functions" was to be charged on the assets in priority to floating charges. The provisions of section 19(4)-(10) introduced by the 1994 Act limited the extent of the liabilities incurred by an administrator after adoption of a contract which are to be treated as an expense in priority to his own remuneration (and other expenses)....

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10 cases
  • Re Nortel GmbH
    • United Kingdom
    • Chancery Division
    • 10 December 2010
    ...this has been identified as the true ratio of Toshoku by two subsequent first instance cases in the Companies Court, namely re Allders Department Stores Limited [2005] EWHC 172 (Ch); [2005] BCC 289 by Lawrence Collins J and Exeter v. Bairstow (supra) by David Richards J. It is submitted t......
  • (1) Alan Robert Bloom (2) Alan Michael Hudson (3) Christopher John Wilkinson Hill (4) Stephen John Harris (5) David Martin Hughes v (1) The Pensions Regulator and Others
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 14 October 2011
    ...different purpose." 94 We were shown several cases decided since Toshoku, all of them at first instance, in particular Re Allders Department Stores Ltd [2005] EWHC 172 (Ch), [2005] 2 All ER 122, and Exeter City Council v Bairstow [2007] EWHC 400 (Ch), [2007] BCC 236. In Allders Lawrence C......
  • Re Trident Fashions Plc
    • United Kingdom
    • Chancery Division
    • 2 March 2007
    ...apply also under the new regime. 74 Mr Briggs relied on the judgment of Lawrence Collins J in In re Allders Department Stores Ltd [2005] 2 All ER 122. The companies in that case were in administration under the new regime and the administrators applied for directions that any statutory lia......
  • Krasner v McMath
    • United Kingdom
    • Chancery Division
    • 9 August 2005
    ...Browne-Wilkinson in my view. 26 In passing I should refer to the decision of Lawrence Collins J in re Allders Department Stores Ltd [2005] EWHC 172 (Ch) in that case he held that redundancy or unfair dismissal payments were not "wages or salary" for the purposes of paragraph 99. That decisi......
  • Request a trial to view additional results
2 books & journal articles
  • Table of Cases
    • United Kingdom
    • Wildy Simmonds & Hill Law of Insolvent Partnerships and Limited Liability Partnerships Contents
    • 29 August 2015
    ...Rly Co, Re [1891] 1 Ch 213 25, 32, 35, 36 Albany Building Ltd, Re [2007] BCC 591 103 Allders Department Stores Ltd and Others, Re [2005] EWHC 172 (Ch), [2005] 2 All ER 122 167 Allied Domecq plc, Re [2000] 1 BCLC 134 33, 38 Allied Produce Co Ltd, Re [1967] 1 WLR 1469 182 Alpa Lighting Ltd, R......
  • Administration
    • United Kingdom
    • Wildy Simmonds & Hill Law of Insolvent Partnerships and Limited Liability Partnerships Contents
    • 29 August 2015
    ...Huddersfield Fine Worsteds Ltd [2005] EWCA Civ 1072, [2005] 4 All ER 886 at [48]–[52]. 543 Re Allders Department Stores Ltd and Others [2005] EWHC 172 (Ch), [2005] 2 All ER 122. 168 Law of Insolvent Partnerships and Limited Liability Partnerships  Protective awards imposed under section 18......

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