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Employment Law

Legal guidance - compliance - software

09 OCT 2014

Secretary of State for Business Innovation & Skills v McDonagh and Pengelly UKEAT/0287/12 and UKEAT/0312/12; [2013] IRLR 598; (2014) EMPLR 038

Edward  Benson

Partner

14 February 2013

Employment Appeal Tribunal (EAT)

Langstaff J

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 unfair results.

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.
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