Secretary Of State For Employment v Bradberry & Ors [1996] UKEAT 1106_95_1706

EAT
Secretary Of State For Employment v Bradberry & Ors
[1996] UKEAT 1106_95_1706 · 1996-06-17

JUDGE J HULL QC:

This is an appeal to us by the Secretary of State for Employment against a decision of the Industrial Tribunal sitting at London (North) on 20 July 1995. The Tribunal was presided over by Mr Robson, with two industrial members. They promulgated their decision on 30 August 1995 and this appeal was brought on 10 October 1995.The case concerns a company which ceased to trade, Swedish Car Centre Ltd, and as a result of unmet claims for pay which was due: for holiday pay; for pay in lieu of notice; for unfair dismissal, there were complaints to the Industrial Tribunal by Mr Bradberry and six other ex-employees of the company.As a result of those claims, which were (as I say) various, the Chairman of Tribunals directed, quite rightly, that the Secretary of State for Employment should be made a Respondent, in view of the provisions in the Employment Protection Act under which the Secretary of State may become liable for the whole or part of these various claims.The Secretary of State wrote a letter to the Industrial Tribunal saying that he did not accept that the company was insolvent within the meaning of the Act. The Industrial Tribunal, whose decision is a long and careful one, addressed themselves first of all, quite rightly again, to the claims of each of the seven claimants and they decided that they were entitled to claim against the company in various sums, under various heads, which I have indicated.Having done that, they turned to the position as it related to the Secretary of State. They said in paragraph 4:
"4 The Secretary of State has been joined as a Respondent to each of the seven applications on the instructions of a Chairman of these tribunals. He has entered a Notice of Appearance asking the tribunal to take account of written representations. In these he states that he does not admit that the First Respondent is insolvent within the meaning of either section 106 or 127 of the Act of 1978 (under which their claims against him lie); that it is accordingly not admitted that they are entitled to receive payments under those provisions and they are put to proof thereof; and that, if they are entitled to receive such payments, no admissions are made as to the extent of their respective entitlements and they are again put to proof thereof."
They say a little later:
"6 We consider that the best way to proceed is first to determine whether the First Respondent is insolvent within the meaning of sections 106 and 127 of the Act of 1978."
They set out that they had seen various documents. They say there is a letter inviting the Bank, that is the National Westminster Bank, which was the holder of a security, of which a little more later, to appoint an administrative receiver to the company pursuant to the power contained in its Mortgage Debenture on an unfettered basis.They had seen a letter from the Bank to accountants asking them to investigate and report and they have seen the Debenture in question dated 26 November 1992, made between the First Respondent, that is the employer and the Bank, creating fixed charges and a floating charge in favour of the Bank over the undertaking and all other property, assets and rights of the First Respondent.They then refer to the notice of appointment made under that debenture on 2 March 1995 of Messrs Baker Tilley (those are the accountants) as book debt receiver of the First Respondent.They then refer to the report made by the accountants which show that there are no assets, apart from those subject to the security. They go on:
"8 For the purposes of section 106 of the Act of 1978 an employer is to be taken to be insolvent if any of the events specified in paragraphs (a), (b) or (c) of subsection (5) of that section has taken place. It is with paragraph (c) that we are concerned. We find that the evidence before us establishes that possession has been taken by or on behalf of the Bank, the holder of a debenture secured by a floating charge of property subject to the charge, namely, the book debts; and that, accordingly, the First Respondent is insolvent within the meaning of the said section 106.
9 Section 127(1) of that Act defines when employer is to be taken to be insolvent for the purposes of section 122 of it.

(c) "

So they then applied the necessary statutory arithmetic to decide how much of the claims which the Applicants had established was payable by the Secretary of State, pursuant to the statutory provisions and arrived at sums of money which were substantial, which were payable by the Secretary of State in the opinion of the Industrial Tribunal.The Secretary of State has appealed and although the terms of the documents relating to the debenture are not perfectly plain from the way in which the Industrial Tribunal has described them, we have been shown an extract from the company register showing the particulars of the mortgage or charge, and that shows that it consists of four "specific charges" (as those are referred to) and Mr Jay submits, and it seems he must be right, that that means fixed charges over certain types of the company's property.Subparagraph (c), that is the third specific charge, is:"(c) ... over all Book and other Debts for the time being ...".Then (e), the fifth charge, is:
"(e) A floating charge over the undertaking and all other property and assets present and future but so that the Company shall not without the Bank's consent create any mortgage or charge ranking in priority to or pari passu with this charge."
So that is the charge of which particulars were laid before the Industrial Tribunal. What is said by the Secretary of State is that the Industrial Tribunal has overlooked the decision of this Tribunal which was given in the case of Secretary of State for Employment v Stone , which is reported in volume 1994 of the ICR at page 761. It was a division of this Employment Appeal Tribunal which was presided over by Waterhouse J, and the facts in many ways are strikingly similar to the present case. I will read the headnote:
"On 17 September 1991 the employee was made redundant by his employers, a limited company. On 20 September 1991 receivers were appointed in relation to `the book debts and other debts comprised in and charged by' a debenture which created, inter alia a fixed charge over those debts and a floating charge over the other assets of the company. The employee claimed arrears of pay from the Secretary of State for Employment pursuant to section 122(1) of the Employment Protection (Consolidation) Act 1978 on the basis that the company was insolvent. The Secretary of State resisted the claim on the ground that the company was not `insolvent' within the definition in section 127(1)(c) of the Act and the employee made an application for payment to an industrial tribunal pursuant to section 124(1). The tribunal accepted that the receivers' appointment was in respect only of the book debts which were the subject of the fixed charge and did not extend to the remainder of the company's assets under the floating charge, but they found that, by taking possession of all the company's books, records and information which related to book debts, some of which also related to the floating charge, the receivers had taken possession of property `comprised in or subject to' the floating charge as well as the fixed charge within the meaning of section 127(1)(c) and that the company was insolvent.

On an appeal by the Secretary of State:-

Held , allowing the appeal, that there was a distinction between appointment of receivers and possession taken by or on behalf of debenture holders in the definition of `insolvent' in section 127(1)(c) of the Employment Protection (Consolidation) Act 1978, and the industrial tribunal ought to have confined their consideration to the terms of appointment of the receivers in order to determine whether there was an insolvency of the company within the meaning of section 127(1)(c) and were not concerned with the factual situation as to assets over which the receivers exercised possession; and that, as the appointment of the receivers was strictly limited to the charge relating to book debts, which was correctly described as fixed, the requirements of section 127(1)(c) were not satisfied and the Secretary of State was not liable to make the payment under section 122 ..."The judgment being given by Waterhouse J, on behalf of this Tribunal, first of all set out the facts that the receivers were appointed in respect of the first fixed charge and they were not appointed in respect of property which, accordingly to the debenture, was the subject otherwise of the fixed charge or of a floating charge.They say, at page 766, paragraph H:
"Thus, it was clear from the terms of the appointment that the two receivers were appointed to be receivers and managers only of the property embraced within paragraph 3(d) of the debenture, namely, all book debts and other debts now and from time to time due or owing to the company. There was no reference to the legal mortgages or the other first fixed charge in respect of freehold and leasehold property of the company and no reference to the first floating charge specified in paragraph 3(e) of the debenture. It is also clear from the findings of the industrial tribunal that the joint receivers understood their appointment to be so limited and a document confirming that position and notifying the appointment was sent to Companies House on 20 September 1991 [that corresponds of course to the document to which I have referred]."
Then, this Tribunal, which had the advantage of being addressed by Mr Jay, who has appeared in front of us today, said that Mr Jay had drawn a distinction between the appointment of receivers or managers under the Act, and the taking of possession (I will refer to that in a moment). They said that Mr Jay had not been able to invite the Tribunal's attention to any authority, but having considered the matter they had reached their conclusion that that submission was correct. So I do not think I need refer further to that authority. It is undoubtedly authority for the proposition which Mr Jay lays before us.When you look at section 127 it states in subsection (1)(c) that:
"(1) ... an employer shall be taken to be insolvent if, but only if, ... [then there are references to other matters] (c) where the employer is a company, ... [then there are matters which do not arise and then the following:] or a receiver or manager of its undertaking is duly appointed, ... or possession is taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge. ..."
It was held in the case of Stone , to which I have referred, that those provisions are to be read disjunctively. There are two alternatives there. First of all, insolvency will be taken for statutory purposes to arise under section 127, "if a receiver or manager of its undertaking is duly appointed". That would be, in the present case, under paragraph (e) of the debenture, and it did not occur.What did occur was that the receivers were appointed under (c), "A specific charge over all Book and other Debts", and that is quite manifestly, on the authority of Stone , neither the appointment of a receiver or manager of its undertaking, nor the taking of possession by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge. Those are two separate things. A receiver or manager may be appointed. If so, you look no further except to see whether it is of the undertaking of the company.Alternatively, possession may be taken by or on behalf of the chargeholders under a floating charge of any property comprised in that charge. Taking possession is a different thing from the appointment of the receiver or manager of the undertaking and in those circumstances, says Mr Jay, neither of these events has occurred.That, on the authority to which we have been referred, is manifestly so and therefore, for the purposes of section 127 the company is not shown to be insolvent. That is an essential condition of the employee's rights under section 122 of the Act, which are various rights of the sort asserted in this case.Section 122 applies to the following debts: arrears of pay; notice pay; holiday pay and basic award for unfair dismissal. Those rights can be asserted under section 122 in the event of the employer's insolvency and that insolvency must be as defined in section 127. It is a condition precedent under section 122(1), that the employer must become insolvent.We would add, for the sake of completeness, that there is a more generous treatment of the employee's right to redundancy pay under section 106(1). There, the employee has to show either (I am taking these out of order) that the employer is insolvent, which is not this case, or that the employee has taken all reasonable steps (other than legal proceedings) to recover the payment (that is to recover the redundancy payment) from the employer and that the employer has refused or failed to pay it or has paid part of it and has refused or failed to pay the balance.So there it is sufficient, for the limited purposes of section 106, and to the limited extent to which the Act allows for redundancy pay to be claimed, if the employee has taken all reasonable steps other than legal proceedings to recover it. That applies (or appears to apply) to part of the claims of certain of the employees here, if not all of them, and we are not in any way concerned with that, because the appeal does not relate to it.So we merely note that the contention that the employer is insolvent is not made out under section 106 either, but that is not a matter which prevents (at any rate limited) recovery for the employees thereunder.So for those reasons, we feel constrained to allow this appeal. We have noted, in argument, and would wish to repeat, that it is exceedingly unlikely that this Industrial Tribunal would have made the mistake identified accurately by Mr Jay, if they had been given the assistance either of Mr Jay, or some other representative of the Secretary of State, or if they had had a letter which explained to them the true meaning of section 127, as explained by this Employment Appeal Tribunal in Stone.In those circumstances, we hope that in future the Secretary of State will expand the ordinary letter which he writes on these occasions for Industrial Tribunals to make it quite plain why he says that the employer is not shown to be insolvent. Both the Applicants and the Tribunal will then be put on notice of the true state of the law and it seems to us that a great deal of trouble and expense and, indeed, unnecessary worry to Applicants, and perhaps to Tribunals too, will be saved. We hope that the Secretary of State will pay attention to that comment, which is similar to comments which we have made on previous occasions.We say no more about it than that. That is our decision and the appeal is allowed.