United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR CHARLES BOURNE (of Counsel) Instructed by: The Treasury Solicitor Queen Anne's Chambers 28 Broadway London SW1H 9JS
For the Respondents	No Appearance or Representation By or on Behalf of the Respondents


 


JUDGE PETER CLARK:

1. The issue in this appeal, brought by the Secretary of State for Trade and Industry and custodian of the relevant fund, is whether the third Respondent, Mr Singleton trading as ASC Fluid Power, was insolvent within the meaning of section 183 of the Employment Rights Act 1996 ("ERA"). A chairman, Mr C Goodchild, sitting alone at Nottingham in this case on 11 July 2001 held that he was not; against that decision, promulgated first with summary reasons on 4 September 2001 and later with extended reasons on 2 July 2002, the Secretary of State now appeals.
2. We should have thought that the statutory meaning of insolvency in the present context is now tolerably clear. For the avoidance of doubt we shall set it out again.
3. Where an employee is dismissed by reason of redundancy and does not receive a redundancy payment from his employer he may recover payment from the Secretary of State in two circumstances prescribed by section 166 (1) ERA:

(1) If he has taken all reasonable steps, other than legal proceedings, to recover the payment from the employer and the employer has refused to or failed to pay it in whole or in part; or

(2) If the employer is insolvent and the debt is unpaid wholly or in part.

4. By section 182 (a) the insolvency provision also applies to debts listed in section 184 ERA, that is outstanding pay, notice pay, holiday pay and a basic award for unfair dismissal subject to certain limits there specified.
5. Insolvency in the case of an individual employer is defined in section 183 as follows:

(1) An employer has become insolvent for the purposes of this part –

(a) Where the employer is an individual if (but only if) subsection (2) is satisfied, …

(2) This subsection is satisfied in the case of an employer who is an individual

(a) In England and Wales if –

(i) He has been adjudged bankrupt or has made a composition or arrangement with his creditors …

6. Section 183 (1) (b) and (3) (a) provides a different, but equally precise definition of insolvency in the case of a corporate employer.
7. These provisions have been the subject of EAT consideration in a number of cases. See particularly the judgment of Judge Hicks QC in Secretary of State for Industry v Forde (1997) IRLR 387; my judgment in Secretary of State for Trade and Industry v Walden (2000) IRLR 168 and that of Burton J in Secretary of State for Trade and Industry v Henson and others (EAT/1025/98 13 March 2000, unreported).
8. The relevant principles to be derived from the cases are that it is for the employee to establish that the statutory definition of insolvency is satisfied, whether the employer is an individual (see Henson), a company (see Walden) or a partnership, in which case all partners in the firm must be shown to be insolvent (see Forde). It is not enough simply that the employer has ceased trading, cannot pay his debts as they fall due or is otherwise in some form of financial difficulty.
9. In the present case Mr Key and Mr Norton were employed by Mr Singleton in his business, ASC Fluid Power. Mr Key's employment began in November 1977, Mr Norton's on 1 June 1996.
10. Mr Singleton fell into financial difficulty and on 22 August 2000 a representative from Savilles, licensed insolvency practitioners, attended at the business premises where both men worked and handed them notices of dismissal.
11. Neither man received redundancy pay or other relevant termination payments; application was made to the Secretary of State for payment without success; accordingly each commenced Employment Tribunal proceedings against Mr Singleton.
12. The Secretary of State was joined and submitted written representations to the Employment Tribunal; it was there disputed that Mr Singleton was insolvent within the meaning of section 183. The relevant statutory provision were there set out.
13. Both applicants appeared before the Chairman who was plainly sympathetic to their position. In his summary reasons he pointed out that the redundancy fund was set up to enable people to receive monies when a company was 'insolvent'. He was impressed by a statement made by Savilles, we see it in their letter to the DTI dated 29 September 2000; that the relevant date of the insolvency is 22 August 2000. In that letter Savilles say that they have been engaged by Tony Singleton to wind up his business affairs on an informal basis. For completeness we should also refer to the following letters relied upon in the skeleton argument submitted in this appeal on behalf of Mr Key:

(1) On 22 August 2000 Mr Singleton wrote to Mr Key saying:

"I regret to advise you that due to lack or orders and the downturn in business, I have taken professional advice and have no alternative but to cease trading and wind up the affairs of ASC Fluid Power. "

He goes on to terminate this Applicant's employment and points out that he may be entitled to various statutory payments as advised and paid by the Department of Employment.

(2) On 24 January 2001 Savilles wrote to AEEU, the Trade Union, saying:

"I can advise you that ASC Fluid Power is an insolvent business and ceased trading on 22 August 2000."

14. In his extended reasons the Chairman purportedly founded as a fact (reasons paragraph 3) that Mr Singleton was insolvent. The insolvency practitioner licensed by the Department said so.
15. In our judgment that simply is not enough. The word insolvency has different meanings in different contexts. It may mean that a trader is unable to pay his debts as they fall due. In the EU Directive (80/98/EEC) Article 2 defines a state of insolvency as arising:

"where a request has been made for the opening of proceedings involving the employer's assets … to satisfy collectively the claims of the creditors …"

16. Precisely what Savilles meant by the expression in their letters referred to earlier is unclear. What is clear is that they did not mean that Mr Singleton was insolvent within the meaning of section 183 ERA. We now know that because on 11 February 2002 a DTI representative wrote to Savilles asking two questions:

(1) Has Mr Singleton been adjudged bankrupt?

(2) Has he made a composition or arrangement with his creditors?

17. The reply, dated 28 February, answered both those questions in the negative.
18. However, we need not rest our decision on that exchange of correspondence. It is that we are satisfied that there was no evidence before the Chairman that either of the limbs of s.183(2) (a) (i) ERA had been satisfied. We include the letters from Savilles in that finding. Accordingly his finding that Mr Singleton was insolvent for present purposes cannot stand. It is plain from the Chairman's reasons that he has not addressed the definition in s.183 (2) (a) (i). The appeal is allowed in these circumstances and the Employment Tribunal's decision is set aside insofar as there is a finding of insolvency which would trigger the relevant payment by the Department. The Chairman's order against Mr Singleton will stand.
19. Finally we note that equivalent redundancy payments have been made by the Department to each Applicant in accordance with section 166 (1) (a). Had they wished to pursue the Department successfully for the remaining sums due it was necessary for them first to issue a bankruptcy notice and to have Mr Singleton adjudged bankrupt (see Henson paragraph 20).