The Secretary Of State For Business Innovation & Skills v Coward & Anor

For an employer company to be treated as insolvent for the purposes of statutory notice-pay protection, there must be direct evidence of an event specified in section 183(3) of the Employment Rights Act 1996. Financial difficulty, unpaid debts, cessation of trading or dissolution does not, without more, satisfy that statutory definition. The claimant bears the burden of proving the relevant insolvency event. An Employment Tribunal therefore errs in law by awarding notice pay under section 182 where no winding-up, receivership, administration or approved voluntary arrangement is proved.

Mrs Coward was employed by Local Taverns Ltd. Her employment ended by reason of redundancy after the company ceased trading. The Employment Tribunal awarded her a redundancy payment and notice pay against the Secretary of State. The Secretary of State accepted liability for the redundancy payment under section 166, but appealed the notice-pay award because no event within section 183(3) had been proved.

The company had unpaid debts and was later dissolved. The central issue was whether those matters established insolvency for the purposes of section 182.

1. The appeal was allowed. The notice-pay award of £2,030 was set aside.
2. Section 182(1) of the Employment Rights Act 1996 makes the Secretary of State’s liability for notice pay conditional on the employer having become insolvent.
3. For a company, section 183(1)(b) provides that insolvency exists only if one of the events specified in section 183(3) has occurred. The applicant must adduce direct evidence of such an event. The relevant events are ordinarily capable of verification from Companies House records: Secretary of State for Trade and Industry v Walden [2000] IRLR 168 applied.
4. Evidence that the company had unpaid debts exceeding £30,000 and had ceased trading did not prove any event within section 183(3). The Employment Judge therefore erred in law by finding the company insolvent on that basis.
5. Dissolution did not cure the evidential deficiency, since dissolution may occur for reasons unrelated to section 183(3).

• Employment Appeal Tribunal: allowed the Secretary of State’s appeal against the notice-pay element of the Employment Tribunal’s judgment dated 27 October 2010; the award of £2,030 was set aside.