Secretary Of State For Trade & Industry v Reed & Ors [1997] UKEAT 983_96_1404

EAT

Secretary Of State For Trade & Industry v Reed & Ors

[1997] UKEAT 983_96_1404 · 1997-04-14

MR JUSTICE LINDSAY: As this matter was when originally before the Industrial Tribunal there had been four applicants: Mr Reed, Mr Sait, Mr Nolan and Mr Allen and two Respondents, first of all Wren Pet Products Ltd, which I shall call "the company" and secondly, The Secretary of State for Trade & Industry.

The appeal, by the four individuals, is directed to a decision of the Industrial Tribunal under the Chairmanship of Mr D E deSaxe on 17 July 1996. At that hearing The Secretary of State for Trade & Industry did not attend but had put in written representations. The unanimous decision of the Industrial Tribunal was that the individual applicants were entitled to payments from The Secretary of State for Trade & Industry as second Respondent. The nature of the payments claimed were, in each case, net wages and holiday pay, and these sums were set out.

It is necessary to read the whole of paragraph 1 of the Extended Reasons and that reads as follows:-

"In these consolidated cases, four former employees of Wren Pet Products Ltd make claims for unpaid wages and holiday pay. The company ceased to trade on or about 5 September 1995. The company has not formally been placed into receivership or liquidation. However, we heard evidence from Mr Matthew John Wren, the son of Mr John Wren, the Managing Director, to the effect that the company had ceased trading through lack of funds. Mr Reed, Mr Allen and Mr Nolan all told us that they had received redundancy payments from the Secretary of State, and we infer that he would not have made those payments had he not been satisfied that the company was insolvent. We conclude that, even though it has not formally been put into receivership or liquidation, the company is, in fact, insolvent, and, if we are satisfied as to the payments claimed by the Applicants, such payments will, as a matter of practicality, fall to be paid by the Secretary of State."

Then the Industrial Tribunal fell to considering the nature of the particular payments claimed. As I have indicated, they were for net wages and holiday pay.

The extraordinary feature of the Extended Reasons is that from beginning to end they make no reference to the sections of the Act under which The Secretary of State might or might not have become liable for paying the sums in question. It is necessary, therefore, to make good that omission by looking at the applicable sections ourselves. The sections fall in Part 7 -"Insolvency of Employer" - of the Employment Protection (Consolidation) Act 1978 Section 122:

"Employee's rights on insolvency of employer

(1) If on an application made to him in writing by an employee the Secretary of State is satisfied__

(a) that the employer of that employee has become insolvent; and

[(aa) that the employment of the employee has been terminated; and]

(b) that on the relevant date the employee was entitled to be paid the whole or part of any debt to which this section applies,

the Secretary of State shall, subject to the provisions of this section, pay the employee out of [the National Insurance Fund] the amount to which in the opinion of the Secretary of State the employee is entitled in respect of that debt.

[(2) In this section "the relevant date"— (a) in relation to arrears of pay (not being remuneration under a protective award made under [section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992]) and to holiday pay, means the date on which the employer became insolvent;"

There are further sections in sub-section 2 which it is unnecessary to read, but it will be noticed that, if the employer has not become insolvent, then there can be no "relevant date" and that, if there is no relevant date, then Section 122(1)(b) is derived of any sense because it requires that there shall be a relevant date as at which the employee was entitled to be paid the particular debt in question.

Going on to Section 122(3) it reads:

"This section applies to the following debts:—

"[(a) any arrears of pay in respect of one or more (but not more than eight) weeks;]"

so that so far as the claimants here were claiming for net wages they were not ruled out of court. Going further, sub section (3) continues:

"3[c) any holiday pay— (i) in respect of a period or periods of holiday not exceeding six weeks in all; and

(ii) to which the employee became entitled during the twelve months ending with the relevant date;]"

Again, if there is no "relevant date" there is difficulty ascribing sense to 3(c), but, so far, there is nothing that rules out an award in favour of the claimants before the Industrial Tribunal. The nature of the debts that were being claimed for were the kind of debts that could be claimed for, in other words, arrears of pay and holiday pay.

Section 122(5):

"The total amount payable to an employee in respect of any debt mentioned in subsection (3), where the amount of that debt is referable to a period of time, shall not exceed [£205.00] in respect of any one week or, in respect of a shorter period, an amount bearing the same proportion to [£205.00] as that shorter period bears to a week."

In fact, the sums here appear in some cases to exceed £205, but no point is taken as to that, nor, indeed, does it need to be.

Going on to Section 124:

"Complaint to industrial tribunal

(1) A person who has applied for a payment under section 122 may, within the period of three months beginning with the date on which the decision of the Secretary of State on that application was communicated to him or, if that is not reasonably practicable, within such further period as is reasonable, present a complaint to an industrial tribunal that—

(a) the Secretary of State has failed to make any such payment; or

(b) any such payment made by the Secretary of State is less than the amount which should have been paid."

Whether or not there was a timely complaint it is not entirely clear from the holdings of the Industrial Tribunal but no complaint is made on that score either, nor, again, does it need to be.

Then one comes to Section 127, which is the most important of the considerations that require attention from us:

"(1) For the purposes of sections 122 to 126, an employer shall be taken to be insolvent if, ... [but then, unusually, the Act goes on] but only if, in England and Wales,—"

there is then a provision as to individuals which concerns bankruptcy or death, and then at (c):

"(c) where the employer is a company, a winding up order [or an administration order] is made or a resolution for voluntary winding up is passed with respect to it, 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 [or a [voluntary arrangement proposed for the purposes of Part I of the Insolvency Act 1986 is approved under that Part]]."

Then there are references to what insolvency should be taken to mean in Scottish cases and definitions of holiday pay and so on to which we need not refer.

Section 127, as it seems to us, provides the complete answer to this case. There was, as will already have been plain from my citation of paragraph 1 of the Extended Reasons, no receivership or liquidation. There is no hint that there was any other evidence of any other of the possibilities in Section 127(1)(c) having been made good. What the Industrial Tribunal did was act upon evidence from Mr Matthew Wren, the son of the Managing Director, "to the effect that the company had ceased trading through lack of funds". That is not only not an insolvency within the meaning of Section 127 (and we reiterate the emphasis on the words "if, but only if") it is, indeed, not, strictly speaking, evidence of insolvency at large because many might be the companies that cease trading through lack of funds but which, nonetheless, are not insolvent, either in the sense that the company is not meeting its debts as they fall due or in the sense that its liabilities exceeds its assets. It might, for example, cease trading simply because its assets equalled its liabilities and that all its debts were paid but that nothing was left.

This is, in other words, a plain case, in which the Industrial Tribunal should have considered the Act, which they do not mention, and, had they done so, they could only have concluded that the Secretary of State was not properly to be liable because there was no insolvency of the kind which the Act requires.

We have had our attention briefly drawn to the case Secretary of State for Employment v Dynes & Holland before the President, then Mr Justice Morison, on 10 May 1995, where a similar conclusion was come to. We do not need to amplify our conclusions from the decision of that case. The appeal by the Secretary of State for Trade & Industry is inevitably to be allowed.

The decision of the Industrial Tribunal to that extent must be set aside. Whether on some later insolvency, if there is a later insolvency, fresh applications are made is plainly to be left to the future.