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In insolvency and restructuring, creditors will lodge proofs of debt in order to claim an amount in the insolvency event (for example, in the Liquidation or Bankruptcy).
Where a proof has been lodged with supporting evidence, and the insolvency professional agrees the amount being claimed it will be ‘admitted’. This means, it will be approved by the Insolvency Practitioner, thereby including the creditor for the potential claiming of a ‘dividend’ (a payment made to creditors once the property of the insolvency estate has been realised).
[See ‘Liquidation’, ‘Bankruptcy’ and ‘Insolvency Practitioner’.]
In an Administration there is no adoption of contracts of employment within the first 14 days of the Administrator’s appointment.
Thereafter, any employees still working in the business in Administration will have their contracts automatically ‘adopted’. The Administrator has liability on adopted contracts of employment for wages and salaries and liabilities post adoption are payable out of floating charge assets, in priority to the Administrator’s remuneration and expenses, ranking ‘pari passu’ (equally) between each other.
However, the contract remains with the company; adoption does not mean that it will be directly with the Administrator (or Administrative Receiver, for which the law is different. The Administrative Receiver (AR) is liable on any contracts of employment adopted in the course of carrying on his functions).
One of the problems with the key case in the area, Paramount, was that although the Administrators wrote to the employees within 14 days of their appointment, stating that they were not adopting the contracts of employment, the court found that they had in fact adopted the contracts by their conduct in continuing the staff’s employment and paying them in accordance with the contracts.
The current position appears to be that only straightforward (post-appointment) wages and salaries are payable as an Administration expense, where employment contracts are adopted by the Administrator. These are known as ‘qualifying liabilities’ and include sick pay, holiday pay, wages and salaries and the occupational pension scheme.
[See ‘Administrator’, ‘Administration’, ‘Qualifying Liabilities’ and ‘Administrative Receiver’.]
