Vol 17 (2020) - Issue 5

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Re Carluccio’s Ltd (in administration) [2020] EWHC 886 (Ch)

Synopsis
In response to the coronavirus pandemic, the government announced a measure of particular significance for companies in administration. This was the Coronavirus Job Retention Scheme ('the Scheme'), by which the government undertook to underwrite, in large part, the payment by private companies of employee wages, in an effort to reduce the scale of any redundancies resulting from the crisis.

The decision of Snowden J in Re Carluccio's (in administration) [2020] EWHC 886 (Ch) ('Re Carluccio's'), heard from 6 to 9 April 2020, was the first decision to consider how the use by companies in administration of the Scheme might be reconciled with the statutory regime set out in Schedule B1 to the Insolvency Act 1986 ('Schedule B1'). In Re Carluccio's, Snowden J carefully considered the circumstances in which administrators would be treated as 'adopting' employment contracts of the workforce. The judgment provides the clarification that an administrator's act of applying to the Scheme in respect of certain employees, or of paying the wages of certain employees to be furloughed under the Scheme, would cause those employment contracts to be 'adopted' under paragraph 99 of Schedule B1. That, in turn, would provide a proper basis for paying employee salaries out of the company's estate in priority to other creditors, consistently with the requirements of the Insolvency Act 1986, as and when the Scheme funds were paid to the company.

Snowden J's analysis provided the foundation for the further consideration of these issues in Re Debenhams Retail Limited (in administration) [2020] EWHC 921 (Ch), heard before Trower J on 15 April 2020, and heard on appeal ([2020] EWCA Civ 600) on 22 April 2020 ('Re Debenhams').