The claimant was made redundant and soon afterwards the company which employed her was dissolved. The claimant claimed redundancy pay and notice pay from the Secretary of State under ss166 and 182 of the ERA 1996 which specify the circumstances in which claimants can bring claims when a company ceases trading. The Tribunal ruled that both payments should be awarded. The Secretary of State appealed against the payment for notice pay because s183(3), which sets out the definition of insolvency, had not been satisfied; the company had ceased trading but there was no proof that it had become insolvent. There was no appeal against the redundancy payment since in this case there is no condition that the company is insolvent.

The EAT agreed with the respondent. The ET had erroneously decided that the company was insolvent, basing its decision on the fact that the company had unpaid debts and had ceased trading. However, there was no proof that the company was insolvent and indeed a search of Companies House only showed that the company was dissolved, which did not necessarily mean that it fell within s183(3).

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Appeal No. UKEAT/0034/11/ZT

EMPLOYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 21 July 2011

Before

HIS HONOUR JUDGE RICHARDSON

(SITTING ALONE)

THE SECRETARY OF STATE FOR BUSINESS INNOVATION AND SKILLS (APPELLANT)

(1) MISS C M COWARD

(2) LOCAL TAVERNS LTD (A DISSOLVED COMPANY) (RESPONDENTS)

Transcript of Proceedings

JUDGMENT

For the Appellant
MR J PURNELL (of Counsel)
Instructed by:
The Treasury Solicitor
(Employment Law Team)
One Kemble Street
London
WC2B 4TS

For the First Respondent
No appearance or representation by or on behalf of the First Respondent

For the Second Respondent
In liquidation

RIGHTS ON INSOLVENCY

The Employment Judge erred in law in making an award of notice pay under section 182 of the Employment Rights Act 1996 when the employer company was not insolvent as defined in section 183(1) and (3).Secretary of State for Trade and Industry v Walden [2000] IRLR 168 applied.

1. This is an appeal by the Secretary of State for Business Innovation and Skills ("the Secretary of State") against part of a judgment of the Employment Tribunal sitting in Southampton (Employment Judge Cowling sitting alone) dated 27 October 2010.

1. Mrs Christine Coward was employed by Local Taverns Limited ("the Company") at the Dorset Knob public house in Poole. The Company ran into financial difficulties. It ceased trading. On 10 May 2010 Mrs Coward's employment was terminated by reason of redundancy. The Tribunal hearing took place on 17 September 2010. After the hearing at the Tribunal the Company was dissolved.

1. Two sums were due to Mrs Coward: a redundancy payment in the sum of £5,481 and notice pay of £2,030. She brought proceedings against the Secretary of State claiming these sums. The Tribunal awarded them.

1. There is a distinction to be drawn between a redundancy payment and a payment in respect of notice pay. The Secretary of State will meet an outstanding redundancy payment if either the employer is insolvent or the employee has taken all reasonable steps other than legal proceedings, to recover the payment and the employer has failed to pay it: section 166(1) of the Employment Rights Act 1996. In this case the Secretary of State is satisfied that Mrs Coward has taken all reasonable steps to recover the redundancy payment, so he will meet that payment.

1. Different considerations apply, however, in respect of notice pay. Here the conditions to be satisfied are those set out in section 182(1) of the 1996 Act. The Secretary of State's liability only arises if the employer has become insolvent: section 182(1)(a).

1. The definition of "insolvency" is set out in section 183. Where the employer is a company the employer has become insolvent "if (but only if) section 183(3) is satisfied: see section 183(1)(b). Section 183(3) provides:

"(3) This subsection is satisfied in the case of an employer which is a company –

(a) if a winding up order…has been made, or a resolution for voluntary winding up has been passed, with respect to the company,

[(aa) if the company is in administration for the purposes of the Insolvency Act 1986]

(b) if a receiver or (in England and Wales only) a manager of the company's undertaking has been duly appointed, or (in England or Wales only) possession has been 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

(c) if a voluntary arrangement proposed in the case of the company for the purposes of Part I of the Insolvency Act 1986 has been approved under that Part of that Act."

1. It is well established that the onus is on the applicant seeking to make a claim against the Secretary of State to adduce direct evidence of one these events. Evidence ought to be readily available, since these events are recorded at Companies House (and are now part of the information which is freely available upon a search against the name of the company over the internet). See Secretary of State for Trade and Industry v Walden [2000] IRLR 168 at paragraph 21.

1. In this case the Secretary of State had searched at Companies House and found no evidence that any of these events had occurred. He told the Employment Tribunal so in written submissions which drew the Tribunal's attention to the provisions of section 183.

1. Mrs Coward attended the hearing with the Company's accountant. No evidence that any of these events had occurred was adduced. The Employment Judge found that the Company was insolvent by reference to evidence from the Company's accountant that it had unpaid debts in excess of £30,000 and had ceased trading. He said that it was "insolvent and unable to pay its debts".

1. This was an error of law. As section 183(1) and (3) make clear, and as the Appeal Tribunal held in Secretary of State for Trade and Industry v Walden, there must be proof of the occurring of an event falling within section 183(3). There was no such proof.

1. Written submissions from Mrs Coward and from the Company's accountant provide no answer to this point. Mrs Coward raises the question whether the Appeal Tribunal has any discretion in the matter; it is, however, the duty of the Appeal Tribunal to decide cases in accordance with the law.

1. I would add that a recent search of the open part of the register at Companies House still does not indicate that there was any event falling within section 183(3). It shows that the Company was dissolved on 28 September 2010. Dissolution can of course occur for a variety of reasons, not necessarily involving an event within section 183(3).

1. It is therefore inevitable that the appeal must be allowed and the judgment, in so far as it concerns the sum of £2,030, must be set aside.