United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR D BARR (of Counsel) Instructed by: The Treasury Solicitor Queen Anne's Chambers 28 Broadway London SW1H 9JS
For the Respondents	MR H FORREST (Solicitor) Humberside Law Centre 95 Arthur Gelder Street Hull HU1 1EP


 


JUDGE PETER CLARK: Part XII of the Employment Rights Act 1996 lays down a regime whereby employees dismissed from employment by a company which is or becomes insolvent may recover their entitlement to, among other things, notice pay out of the National Insurance Fund administered by the Secretary of State for Trade and Industry. That is what an Employment Tribunal sitting at Hull on 12th May 1998 found should happen in the case of Mrs Walden. It is against that part of the tribunal's decision, promulgated with extended reasons on 4th June 1998, that the Secretary of State now appeals.

The Facts

1. These may be briefly stated. Mrs Walden was continuously employed as a typist/clerk by Kealfreight Ltd ["the Company"] and its predecessors from mid-March 1985 until 10th February 1997.
2. During the latter part of her employment Mrs Walden was conscious that the Company's financial position was very poor. North Sea Ferries refused to transport its trailers across the Channel because the Company owed them so much money. There was difficulty in paying her wages, but the Company managed to do so up until 10th February 1997 when she was told that her job was finished. She was thereby dismissed. The Company did not pay her pay in lieu of notice to which she was entitled. Nor did they make her a redundancy payment; that is not a matter with which we are concerned in this appeal.
3. The tribunal had before them an official document issued by Companies House, which showed that the Company was dissolved in 1997.
4. On 22nd August 1997 Mrs Walden presented an Originating Application to the Employment Tribunal. She named as respondents Mr R Kemp and the Company. Mr Kemp had at one time been involved with the Company. We are told that the appellant was joined as a party by order of the Employment Tribunal, acting of its own motion under rule 17 of the Employment Tribunal Rules of Procedure, on 30th January 1998. For completeness, we should add that another individual, Mr Jennings, was also a respondent. The claims against him and Mr Kemp were dismissed.

The Law

5. S 182 of the 1996 Act provides:

"If, on an application made to him in writing by an employee, the Secretary of State is satisfied that-

(a) the employee's employer has become insolvent,

(b) the employee's employment has been terminated, and

(c) on the appropriate date the employee was entitled to be paid the whole or part of any debt to which this Part applies,

the Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount to which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt."

6. The issue in the case for present purposes was whether the Company was insolvent within the meaning of s. 183 of the Act, which provides so far as is material:

"(1) An employer has become insolvent for the purposes of this Part-

…

(b) where the employer is a company, if (but only if) subsection (3) is satisfied.

…

(3) This subsection is satisfied in the case of an employer which is a company-

(a) if a winding up order or an administration order has been made, or a resolution for voluntary winding up has been passed, with respect to the company.

(b) if a receiver or (in England and Wales only) a manager of the company's undertaking has been duly appointed, or (in England and Wales only) possession has been taken by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge, or

(c) if a voluntary arrangement proposed in the case of the company for the purposes of Part I of the Insolvency Act 1986 has been approved under that Part of that Act."

The Employment Tribunal's Decision

7. Before the tribunal Mrs Walden was represented by Mr Humphrey Forrest, who appears before us today. The appellant was not represented, but relied upon written representations sent to the tribunal and dated 10th March 1998.
8. We should say something about written representations. Rule 8(5) of the Employment Tribunal Rules of Procedure provides for a party to rely on written representations, which should be submitted at least seven days before the hearing, with a copy to each other party. At the hearing those representations are to be taken into account by the tribunal in lieu of oral evidence from that party. What weight is to be given to them will be a matter for the tribunal. But they must be considered. Where there is a conflict between the written representations and evidence given on oath by a witness called by an opposing party, common sense dictates that less weight will be given to the former than the latter.
9. It is not uncommon for the Secretary of State, faced with many Employment Tribunal hearings around the country in which he is interested and joined as a party, to rely on written representations. That is a simple matter of economics. On contested factual issues those written representations may be of little value. But on the law and on facts not in dispute tribunals would be well advised to pay careful attention to what is said.
10. In the course of his written representations in this case the appellant said:

"The applicant [Mrs Walden] has been unable to provide any information to demonstrate that Keal Freight Ltd is insolvent and the Secretary of State's own enquiries have failed to reveal any evidence of insolvency.

…

The applicant has also made a claim under section 182 of the Act. As detailed above, there is no evidence to suggest that the applicant's former employer, Keal Freight Ltd is insolvent as defined within section 183 of the Act."

11. The tribunal expressed their conclusion on the issue of insolvency at paragraph 3 of their reasons thus:

"… section 183 when defining insolvency of a limited company specify that this applies if a winding-up order or an administration order has been made, or a resolution for voluntary winding-up has been passed with respect to the company. The Tribunal takes the view that the fact that the company was dissolved in 1997 makes it almost certain one of those three things has occurred in respect of this particular company. Although it seems likely that this company was insolvent and that was the reason for it being dissolved, this is not a necessary constituent for the purposes of this Act of the word "insolvency". Accordingly, the Tribunal finds in favour of the applicant and that the responsibility for the appropriate payments falls upon the fourth respondent [the appellant before us]."

The Appeal

12. Mr Barr submits that s. 183 sets out an exhaustive list of events amounting to insolvency. It is not enough, for example, that the Company has simply ceased trading or is unable to pay its debts as they fall due. That proposition is common ground and we accept it. Was it open to the tribunal to infer that "the fact that the company was dissolved in 1997 makes it almost certain one of those three things [the events specified in s. 183(3)(a)] has occurred is respect of this particular company?"
13. Mr Barr points out that the fact that the Company was dissolved is not, of itself an indication that a winding-up order or an administration order has been made, or that a resolution for voluntary winding-up has been passed with respect to the Company. Under s. 653 of the Companies Act 1985 the Registrar of Companies may strike a defunct company off the Register. Such company is then dissolved without there having been any of the three events specified in s. 183(3)(a). That process occurs, for example, where the company has failed to file its annual accounts. Further, by s. 652A of the 1985 Act the Registrar may strike a defunct private company off the Register on application by the company. Such a company is then dissolved without the need for a winding-up or administration order or voluntary winding-up.
14. He submits that the onus lay on the employee to show that the Company was insolvent under the definition contained in s. 183(3). That she manifestly failed to do. The fact of one of the three relevant events is readily ascertainable from documentary proof. None was produced.
15. Further, the appellant had indicated in written representations, uncontroverted by evidence from the appellant, that enquiries revealed that none of the three events had taken place.
16. Mr Forrest counters in the time-honoured way. He contends that it was a matter for the Employment Tribunal sitting as an industrial jury to decide the case on the evidence before them. They found as fact that the Company was in financial difficulties and that it was dissolved during 1997. On those facts it was open to the tribunal to draw the inference that one of the three events specified in s. 183(3)(a) had taken place.
17. He accepts that there was no direct evidence that any one of the three events had occurred; but no evidence to the contrary was adduced by the appellant. He cannot now complain if the tribunal drew the inference that it did.
18. We cannot accept that submission. It seems to us that the fact that one of the three events has taken place is capable of direct documentary proof. The difficulty with Mr Forrest's submission is that, like the tribunal we think, he overlooks the unchallenged evidence of the appellant, in the form of his written representation, that his enquiries failed to reveal any evidence of insolvency within the statutory definition. The absence of any proof from either party that one of the three events has taken place appears to us to be conclusive. The employee's claim against the fund must fail.

Conclusion

19. In our judgment the tribunal fell into error by failing to appreciate the legal effect of dissolution of a company. Its finding that the fact of dissolution coupled with the Company's financial difficulties, makes it almost certain that one of the three statutory events had taken place is legally perverse. On a proper reading of s. 652/652A of the 1985 Act the contrary is the true position. It is a finding wholly unsupported by relevant evidence. Piggott Brothers Ltd v Jackson [1992] ICR 85.
20. We shall allow the appeal. In the absence of any evidence which shows that any one of the three events identified in s. 183(3) has taken place we shall reverse the tribunal's finding and dismiss Mrs Walden's claim for notice pay out of the National Insurance Fund.
21. For the future, it will be incumbent on applicants relying on s. 182 of the Act to adduce direct evidence of one of the act of insolvency provided for in s. 183(3). That list is exhaustive. The onus of proof lies on the applicant. We reject Mr Forrest's submission that it is for the Secretary of State, whose Department has responsibility for Companies House, to prove the negative. The information contained there is in the public domain. We are satisfied that evidence of any of the three events will be available to the public from Companies House.
22. In the event that no steps have previously been taken which result in the insolvency of the employer company, as statutorily defined, the only remedy is for the applicant to petition for a winding-up order. See re ELOC Electro-Optieck [1981] ICR 732.