Krasner (Administrator of Globe Worsted Company Ltd & Huddersfield Fine Worsteds Ltd.) v McMath (Representing All Employees of the Companies)

Under paragraph 99 of Schedule B1 to the Insolvency Act 1986, wages or salary includes sums treated as earnings for the relevant period under social security legislation. That provision therefore covers contractual payments in lieu of notice and protective awards, where they relate to the period during which the administrator adopted the employment contracts. The reference to sums treated as earnings is not confined to sums deemed earnings under a particular regulation. The provision should be construed coherently with parallel statutory regimes and the rescue culture, but those considerations do not justify departing from clear statutory language.

The administrator of two companies sought declarations concerning the priority of employees’ claims in the companies’ administrations. The claims comprised contractual payments in lieu of notice and protective awards under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992. The central issue was whether those payments constituted wages or salary within paragraph 99(5) and (6) of Schedule B1 to the Insolvency Act 1986, and were consequently payable in priority during the relevant period of contract adoption.

1. The applications were determined against the administrator. Payments in lieu of notice and protective award payments relating to the period of adoption of the employment contracts were wages or salary for paragraph 99 of Schedule B1 to the Insolvency Act 1986, and were payable in priority under that paragraph.
2. Paragraph 99(6)(d) includes, in respect of a period, any sum which would be treated as earnings for that period for the purposes of an enactment about social security. The wording is not limited to sums treated as earnings under regulation 4 of the Social Security Benefit (Computation of Earnings) Regulations 1996.
3. Paragraph 9 of those Regulations treats payments in lieu of notice and protective awards as earnings. It was therefore logical and consistent for those payments also to be treated as wages or salary under paragraph 99(6)(d).
4. The statutory construction approach described by Lord Browne-Wilkinson in Powdrill v Watson [1995] 2 AC 394 was relevant. The statutory words had to be read as a whole and in context, including the legislative mischief and the rescue culture. Those considerations did not produce an absurdity or justify the narrower construction proposed for the administrator.
5. The court noted the reasoning in Re Allders Department Stores Ltd [2005] EWHC 172 (Ch) that statutory payments are not made under the employment contract. That point did not prevent the claims in issue from falling within the statutory definition of wages or salary.

First-instance decision. No prior appellate decision was stated in the judgment.