Chapter 16Employing labourtheir contracts of employment. Such adoption is auto-
matic. This does not mean that he and his firm will
become employers in the true sense. However, if, when
the administrator finishes his work and leaves the com-
pany, there are outstanding, e.g. any wages or salaries
of retained employees, they must be paid before the
administrator is entitled to his fees and expenses. The
effect of adoption is not, therefore, to make an adminis-
trator personally liable for wages or salary, but adoption
may affect their fees and expenses. This provision is
to correct a possible unfairness which existed under the
previous law before the coming into force of the present
insolvency provisions which are contained in the
Insolvency Act 1986 (as amended by the Insolvency Act
2000). In earlier times an administrator would have
been able to take the services of an employee of the com-
pany for a short period of time and then say ‘your con-
tract is with the company: the company is insolvent and
I do not intend to pay you’. Thus the employee might
work without any right to pay. As we have seen under
the provisions of the current law, if an administrator
allows an employee of the company to contribute his
services, he is deemed to have adopted the contract and
the employee must be paid before the insolvency practi-
tioner is entitled to his fees and expenses.
If, of course, an administrator dismisses an employee,
that employee can make a claim for a redundancy payment.
It is worth noting that the above provisions of the
Insolvency Act 1986 relating to adoption of employment
contracts gave insolvency practitioners an incentive to
opt out of the liability and statements made in the High
Court in Re Withall and Conquest and Specialised Mold-
ings Ltd(1987) to the effect that a form of letter sent to
employees during the first 14 days of an administration
or administrative receivership disclaiming adoption
would work to the extent that during an administration
or receivership remuneration including holiday pay and
contributions to occupational pension schemes would
be paid, as was the practice anyway where the insolvency
practitioner traded on, but no more. The major concern
of insolvency practitioners was to get rid of the potential
liability to make payments in lieu of notice. If trading
fails, an insolvency practitioner is rarely able to give
employees notice and in the case of senior employees the
notice period may be three months or more and since
such employees are usually on high salaries the potential
burden is considerable. However, in Powdrillv Watson
(1994) the Court of Appeal held that the letter was of no
effect and that after the requisite 14 days employment
contracts were adopted including liability to pay in lieu
of notice. In order to sustain the administration and
receivership procedures which would have otherwise
collapsed leaving liquidation as the only insolvency pro-
cedure, the government rushed through Parliament the
Insolvency Act 1994, which confirms that contracts are
adopted but restricts the liability of the insolvency prac-
titioner to certain ‘qualifying liabilities’. Only these liab-
ilities will be payable in priority to other claims such as
the holder of a floating charge and preferential creditors
and the fees and expenses of the insolvency practitioner.
The qualifying liabilities are wages or salaries including
sickness and holiday pay and contributions to occu-
pational pension schemes. Payments in lieu of notice
are not included. The liabilities concerned must have
been incurred after the adoption of the contract. Other
employment liabilities will remain but will be treated
as unsecured claims against the company and may not
be paid in view of the insolvency unless the insolvency
practitioner can trade out of trouble.Demise of the administrative receiver
Where a company had borrowed money and given secur-
ity for the loan by charging its assets under a debenture,
the debenture holders could if, for example, they were
not paid interest on the loan, appoint a receiver and
manager, later referred to as an administrative receiver.
The most common appointment was by a bank in respect
of an overdraft or loan facility to a company.
There is no point in dealing with the effect of the
appointment of an administrative receiver on contracts
of employment since under the Insolvency Act 1986
these appointments can no longer be made except in
very specialised areas beyond the scope of this text. Those,
such as banks and other secured creditors, can now only
appoint administrators or liquidators.Company liquidation
The possibilities are as follows:
1 A compulsory winding-up.Here the court orders the
winding-up of the company, usually on the petition of a
creditor because it cannot pay his debt. The making of a
compulsory winding-up order by the court may have the
following effects according to the circumstances of the case:
■Where the company’s business ceases, the winding-up
order will operate as a wrongful dismissal of employees.559