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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.


In This Special Edition:

» Discrimination legislation and the potential for personal liability.
» 28 Days Later
» Joint Ownership – For Better or for Worse?

Insolvency Bulletin

The Business Recovery and Insolvency Bulletin is Taylors regular newsletter providing the latest information and updates for all business recovery, restructure and insolvency issues and case law. - Sign up now!

Discrimination Legislation and the Potential for Personal Liability

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.

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.

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.

28 Days Later

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.

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.

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.

Joint Ownership – For Better or for Worse?

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.

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.

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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