Administration doubts spared after Appeal Court ruling

The Court of Appeal has overturned a landmark decision handed down by the High Court that had caused widespread concern regarding the priority of certain employment liabilities in administrations.

As first reported in The Lawyer (8 August), Mr Justice Peter Smith last month ruled in the case of Krasner v McMath that amounts due to employees in respect of protective awards and payments in lieu of notice take priority over the administrator’s fees and administration costs.

However, Mr Justice Etherton overturned the Krasner decision last week during a first instance and expedited Court of Appeal hearing following an application by the administrators of Granville Technology, the company behind Time and Tidy computers.

The decision restores the previously understood position that protective awards do not attract priority, and alleviates concerns that Krasner could have jeopardised administrations involving companies forced to make large numbers of employees redundant.

Had the Krasner decision stood, administrators would have been more likely to terminate employment contracts within 14 days of a company being placed into administration to avoid becoming liable for the contracts and any subsequent protective awards, which would then take priority over preferential creditors.

Granville Technology called in administrator Grant Thornton at the end of July, resulting in the majority of the company’s 1,600 employees at the group’s Burnley factory being made redundant.

Had the Krasner decision stood, Grant Thornton would have probably made the company’s remaining 165 employees redundant immediately.