Feb 2013
In the Secretary of State for Business –v- McDonagh & others, the Employment Appeal Tribunal (“EAT”) had to consider when “insolvency” occurred under the Employment Rights Act 1996 (“ERA”) in respect of claims for arrears of pay and holiday pay from the National Insurance Fund (“NIF”).
Under the ERA, where arrears of pay and holiday are concerned, only payments due as at the time insolvency occurs are payable from the NIF. The employers in two joined cases had been subject to compulsory liquidation and a compulsory winding up respectively following, in both cases, creditor’s voluntary arrangements (“CVAs”) being approved some months earlier. The employees in both cases were unaware of the CVAs and were owed arrears of pay and holiday pay for the period between the CVAs and the later liquidation/winding up. The EAT held that the correct interpretation of the ERA was that insolvency occurred on the earlier date when the CVAs were approved, not the date of the later liquidation/winding up. Accordingly, the claimants had no remedy against the NIF.
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