Employees take priority over administrators

The High Court handed down a decision last month which could have far-reaching implications for insolvency professionals.

Mr Justice Peter Smith 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 administrators’ fees and administration costs.

The landmark decision could jeopardise administrations involving companies that are forced to make a large number of employees redundant. This could include Granville Technol-ogy, the company behind Time and Tiny computers, which called in the administrators at the end of July, a move that resulted in the majority of the company’s 1,600 employees at the group’s Burnley factory being made redundant.

If the redundant staff decide to apply for a protective award, Granville Technology’s fees payable to the administrator Grant Thornton and its legal adviser Lovells could potentially be at risk.

An industrial tribunal can force an employer to pay a protective award if the employer fails to consult with staff representatives to consider matters such as reducing the number of people affected and mitigating the consequences. The consultation period varies depending on the number of employees being dismissed. For instance, if a company proposes to sack 100 or more employees the period is 90 days. If an award is then made, an employer will be required to pay staff remuneration from the date of the dismissal up to a maximum of 90 days.

A spokesperson for GrantThornton said the administrators were aware of the case, but declined to comment further.