DLA Piper Rudnick Gray Cary’s insolvency team has won a High Court case that could have jeopardised the sell-off of department store Allders. The case also had far-reaching implications for insolvency professionals.
The High Court held an expedited hearing last Tuesday (15 February) to determine whether, as the Insolvency Service claimed, redundancy and other payments to employees should be paid out of administration expenses, which would have jeopardised the fees of administrators and their lawyers – in this case Kroll and DLA Piper.
Mr Justice Collins ruled on Wednesday morning, however, that employment liabilities, which are a major cost in any insolvency, were not payable out of administration expenses.
Had he not done so, it is likely that Kroll would have had to take Allders out of administration and put it into receivership, another form of insolvency procedure which ringfences employment expenses in order to safeguard its fees. This would have caused considerable disruption.
The Allders administration has been a success story, with 24 of the chain’s stores being picked up by rival retailers, including Philip Green’s Bhs, Debenhams and Primark. More than 2,000 jobs in the group are understood to have been saved, primarily because Kroll and DLA Piper have been able to move so quickly.
DLA Piper head of insolvency in London Stephen Halladay declined to comment on the implications for Allders. However, he told The Lawyer: “What the Government wanted with the Enterprise Act was to the use administrations rather than receiverships, so this would have been contrary to whole purpose of the act, which was to change rescue culture.”
Halladay added that insolvency professionals would have found it difficult to accept instructions on some administrations due to concerns that they were not financially viable.