Allders Department Stores Ltd. & Ors, Re

Statutory redundancy and unfair dismissal liabilities arising after an administrator terminates employment are not wages or salary under paragraph 99 of Schedule B1 to the Insolvency Act 1986. They therefore do not obtain priority as liabilities arising from an adopted employment contract.

Nor are they necessary disbursements under Rule 2.67(1)(f) of the Insolvency Rules 1986. The general expenses provisions cannot override the specific scheme in paragraph 99 or the preferential-debt provisions in Schedule 6. Such liabilities are unsecured claims, subject to any separate statutory priority expressly provided.

The administrators of three companies in the Allders Department Stores group sought directions concerning statutory redundancy and unfair dismissal liabilities that might arise if employees’ contracts were terminated during the administrations.

The administrators proposed treating some employee liabilities as preferential under Schedule 6 and paragraph 99 of Schedule B1 to the Insolvency Act 1986, with the balance treated as unsecured. The Attorney General contended that the statutory liabilities were administration expenses under Rule 2.67(1)(f) of the Insolvency Rules 1986. The central issue was whether those liabilities were wages or salary, or necessary disbursements, attracting priority as administration expenses.

The court gave directions in favour of the administrators and declared that statutory redundancy and unfair dismissal liabilities were not required to be paid as expenses of the administrations.

1. Paragraph 99 of Schedule B1. Priority under paragraph 99 applies to liabilities adopted after the relevant 14-day period which are wages or salary. Redundancy payments and unfair dismissal payments do not fall within that expression. The statutory inclusions in paragraph 99(6) extend the meaning of wages or salary but do not include those liabilities.
2. Interaction with Rule 2.67. Rule 2.67 contains general provisions concerning administration expenses. They must not be construed to override the specific regime in paragraph 99, which is the lex specialis. Rule 2.67(1)(g) concerns persons actually employed by the administrator and does not cover statutory employment liabilities.
3. Necessary disbursements. Redundancy and unfair dismissal liabilities are not necessary disbursements under Rule 2.67(1)(f). Treating them as expenses would undermine the statutory scheme under which specified employee liabilities, including protective awards, receive preferential treatment under Schedule 6.
4. Re Toshoku. The decision in Re Toshoku Finance UK plc [2002] UKHL 6 did not establish that every liability which is not provable is necessarily a disbursement. Its reasoning concerning provability was directed to the particular treatment of post-liquidation liabilities and did not require the same result in an administration.
5. The court also considered the adverse consequences for the administration regime and the established treatment in practitioner texts. The statutory liabilities were accordingly unsecured claims, subject to any applicable statutory priority.