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Business Recovery And Insolvency
Bulletin
Special Edition: May 2011
Welcome to this special interim
edition of Resolve.
This extra bulletin covers 3
recent cases which have potentially
significance to insolvency procedure
and practice.
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The recent decision of the Employment
Tribunal in Spencer v Lehman Brothers
Limited [2010] could have far reaching
implications for officeholders when dealing
with employees.
Facts
Mrs Spencer was on maternity leave when
her employer entered into administration on
15 September 2008. There had been no
consultation prior to her dismissal and her
selection was made by the employer’s Head of
Corporate Security who was also an employee
of the company. Mrs Spencer claimed that she
had been unlawfully dismissed pursuant to
the Sex Discrimination Act 1975 (“SDA”). The
claims against the employer were stayed
pursuant to the statutory moratorium,
however, Mrs Spencer had also brought the
individual administrators and their firm
into the proceedings. The relevant part of
Mrs Spencer’s claim was brought under
sections 41 and 42 of the SDA. To summarise,
section 41 of the SDA provides that an
employer may be liable for his employee’s
acts or those of an agent acting within his
express or implied authority. Section 42(1)
of the SDA provides that a person who
knowingly aids another in an unlawful act is
also liable. Section 42(2) of the SDA
provides that an employer is deemed liable
for the actions of employees or agents for
whom he would be liable under section 41.
The Decision
The Employment Tribunal determined that
Mrs Spencer had not been dismissed by reason
of sex discrimination on the basis that she
had not been subjected to any less
favourable treatment or detriment in
comparison to her colleagues. The Tribunal
also found that there was clear evidence
that Mrs Spencer’s dismissal arose out of a
pure redundancy situation and not because
she was on maternity leave.
In spite of this finding of fact the
Tribunal hypothesised about whether
liability might have rested with the
insolvency practitioner’s firm or with the
administrators personally.
With regard to the claim against the firm
the Tribunal correctly decided that no claim
could be brought given that the firm had not
been appointed as officeholder. With regard
to the administrators the Tribunal found
that on the facts of this case there was no
evidence from which it could be inferred
that they knew they were or might be aiding
an act of unlawful discrimination. The
Tribunal found that it was reasonable for
the administrators to rely on the
professionalism of the employer’s HR
managers to fairly and lawfully identify
which employees were to be selected for
redundancy.
Nevertheless the Tribunal found that it
was possible for circumstances to arise
which might give rise to an agency
relationship between the administrators and
the employees. The Tribunal determined that
the fact that the administrators were the
agent of the company did not prevent an
agency relationship forming with the
employees. This decision potentially leaves
the door open to a claim being made against
administrators personally for the actions of
employees post appointment.
Comment
It should be noted that this decision is
one of the first instance in the Employment
Tribunal and is open to further scrutiny. It
is doubted that the reasoning adopted by the
Tribunal regarding the potential for there
to be an agency relationship between
employees and administrators would have much
weight if reconsidered. The decision ignores
the fact that administrators are agents of
the company and employees remain employees
of the company there being no direct
relationship between the administrators and
the employees. Whilst an administrator is
the company’s agent pursuant to paragraph 69
of Schedule B1 to the Insolvency Act 1986 it
is not correct to say that the
administrators are at any time substituted
for the company when dealing with the
contract between the company and the
employee. This reasoning appears flawed
although practitioners might want to take
special care when instructing employees of a
company to perform functions relating to
redundancy.
The case of WW Realisation 1 Limited
(in administration) [2010] EWCHC 3604 is an
example of how useful the Court can be to
determine practical issues arising in an
administration.
Facts
This case concerned the conclusion of
the administration of what used to be
Woolworths PLC. The administration had been
completed and the company was about to be
placed into liquidation with funds available
to pay a distribution to the company’s
secured creditors. However, there were
potential expense claims outstanding from
various landlords and local authorities in
relation to rent and rates. The
administrators had written to all the
landlords and to the local authorities and
had invited them to submit claims for
expenses. Surprisingly, a number of the
correspondents had failed to make any
claims. The administrators made an
application to the Court pursuant to
paragraph 63 of Schedule B1 to the
Insolvency Act 1986 for directions.
The Decision
The Court made an order requiring the
administrators to send notice to all
landlords and local authorities requesting
that they submit any claims for expenses
with a cut off date of 28 days. The Court
noted that the interest of expense claimants
must be properly protected but equally that
the administrators should be allowed to
complete the proper working of the
administration and place the company into
liquidation. The Judge decided, therefore,
that it was appropriate in circumstances
where the possible expense claimants had
already been contacted by the administrators
to provide a cut off date after which claims
would not be capable of being made.
Comment
The decision makes it clear that one of
the relevant factors considered was that the
possible expense claimants were
organisations that could be expected to have
proper regard to protect their own
commercial interests and could also expect
to have an understanding of the insolvency
processes. The case may have been less
straightforward had the landlords been less
substantial and had there been a number of
private individuals with expense claims.
Nevertheless, this demonstrates the wide
ambit of paragraph 63 of Schedule B1 to the
Insolvency Act 1986 and how, in a genuine
case of need, the administrators can make
use of this provision and seek the Court’s
assistance in carrying out their function.
On 4th May 2011, the Supreme Court
commenced hearing the case of Kernott V
Jones which could have a significant impact
on the law surrounding cohabiting couples
and their rights in real property.
Facts
The matter was last heard in the Court
of Appeal when the facts were stated as
follows. In 1983 Mrs Jones and Mr Kernott
started co-habiting in Mrs Jones’ home. They
went on to have two children together and
eventually purchased a property together in
their joint names, using a joint mortgage
and the proceeds of sale from Mrs Jones’
home. They separated in 1993 and Mr Kernott
moved out and purchased another property. Mr
Kernott made no further contribution to the
payment of the mortgage or to household
expenditure. In 2008 Mr Kernott severed the
joint tenancy and sought to realise his
share of the property. Mrs Jones issued
proceedings to determine the parties’
respective beneficial interests. At first
instance the Judge held that Mrs Jones had a
90% share and Mr Kernott 10%.
Court of Appeal Decision
Mr Kernott appealed first of all to the
High Court where his appeal was dismissed
and then to the Court of Appeal which
allowed his appeal and found that the
property was held in equal shares by each
party. The Court of Appeal applied the
reasoning in the 2007 House of Lords case of
Stack v Dowden which provides that in
circumstances where property is owned
jointly, without strong evidence to the
contrary, it is to be expected that it was
the intention that the beneficial ownership
was to be jointly owned. Following this
binding authority the Court of Appeal
reiterated the principle that in the absence
of strong evidence to the contrary regarding
the agreement between the parties and
regardless of any conduct which might
indicate the contrary, it is wrong for the
Court to impute an intention that a property
held in joint names was not intended to be
held in equal shares. Mrs Jones has appealed
this decision which is currently being
decided by the Supreme Court.
Comment
If the Supreme Court decides to depart
from the established approach in Stack v
Dowden this case could have significant
ramifications for bankruptcies involving
jointly owned property and in particular
might make it easier for a non-bankrupt
joint owner to claim a greater interest than
that of the bankrupt. Conversely, any
departure from the present approach might
make it easier for a trustee in bankruptcy
to claim an interest in a property which has
been the bankrupt’s residence but is owned
solely by a non-bankrupt. Given the
ramifications of the decision it is likely
to be reserved and may not be handed down
for some weeks. Further updates will be
provided in due course.
Copyright 2006 - 2011 Taylors Solicitors
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