Haine v Secretary of State for Business Enterprise & Regulatory Reform & Anor

A protective award for breach of the collective consultation duty is a contingent liability provable in the employer’s liquidation where the duty was incurred before liquidation. The liability arises by reason of the pre-liquidation breach, even though the award is made later and the tribunal retains a formal power not to make one. That power is tightly controlled: after a complete failure to consult, and absent mitigation, the proper award is the statutory maximum. Insolvency provisions must be construed, so far as possible, to give effective, proportionate and dissuasive enforcement of collective-redundancy obligations.

Compound Sections Ltd dismissed 40 employees without carrying out the consultation required by Trade Union and Labour Relations (Consolidation) Act 1992, section 188. An Employment Tribunal upheld the complaint and made maximum protective awards under section 189. The company entered administration and then liquidation before the awards were made.

The liquidator sought directions on whether the awards were provable debts. Sir Donald Rattee held that they were not provable under rules 12.3 and 13.12 of the Insolvency Rules 1986. The employees’ representative and the Secretary of State appealed. The central issue was whether the post-liquidation protective awards were liabilities arising by reason of an obligation incurred before liquidation.

1. Appeal allowed. The protective awards were contingent liabilities within rule 13.12(1)(b) of the Insolvency Rules 1986, and were therefore provable in the company’s liquidation.
2. The liability was one to which the company might become subject after liquidation by reason of the pre-liquidation obligation to consult under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992. Rule 13.12(3) made it immaterial that the liability was future, contingent or unliquidated.
3. The legislation was construed purposively in light of Council Directive 98/59/EC, article 6. Treating the award as wholly discretionary and non-provable would allow an employer to escape liability for breach while leaving the Secretary of State to bear the cost. That would not provide effective, proportionate and dissuasive enforcement.
4. Although section 189(2) retained a formal power not to make a protective award, GMB v Susie Radin Ltd established that the award was a sanction rather than compensation and that seriousness of default was central. After a complete failure to consult, the tribunal should start with the maximum period and reduce it only for mitigating circumstances. On these facts the maximum award was practically inevitable.
5. Glenister v Rowe and Regina (Steele) v Birmingham City Council were binding but distinguishable. They concerned genuinely uncertain discretionary liabilities: prospective costs in Glenister and a discretionary recovery determination in Steele. A protective award following a complete breach of section 188 was materially different.
6. The protective awards were therefore provable under rule 13.12(1)(b), and the appeal was allowed.

• Court of Appeal (Civil Division) — The appeal was allowed. The protective awards were held to be contingent liabilities provable in the liquidation.
• High Court (Chancery Division) — Sir Donald Rattee held that the awards were not provable debts under rules 12.3 and 13.12 of the Insolvency Rules 1986: [2007] EWHC 2691 (Ch).