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Employees are guaranteed certain debts from the National
Insurance Fund if their employer becomes insolvent. The debts include up to
eight weeks’ arrears of pay, up to six weeks’ holiday pay and the basic award
for unfair dismissal. The guarantee of arrears of pay and holiday pay only
applies if the amount is owing at the date of insolvency. A company which first
enters a Creditors’ Voluntary Arrangement (CVA) and later goes into liquidation
is treated as becoming insolvent on the date of the CVA so only debts owing at
that date, not the later date of liquidation, are guaranteed. This can have
The judgment concerned two separate appeals. In both cases, the
employer entered a CVA without the employees knowing, and continued to pay
wages. In fact, Ms Pengelly did not start working for the company until after
the CVA. Both companies later went into compulsory liquidation / winding up,
owing their employees arrears of pay and holiday pay.
The Employment Appeal Tribunal held that the guarantee
did not apply because the companies had become insolvent when the CVAs were
entered, even though the employees were unaware of the CVAs, and on that date,
the debts were not owing.