Secretary of State for Trade and Industry v Walden and another (Unreported 22.7.99)

In order for an employee to qualify for payments out of the National Insurance Fund the employer has to be "insolvent". If the employer is a company, insolvent means that a "statutory event" has occurred which is either that:

  • there is a winding up order, administration order or resolution for winding up; or 
  • a receiver has been appointed; or 
  • a voluntary arrangement has been approved under the Insolvency Act 1986.

 

In this case the company had been in financial difficulties and was dissolved during 1997. The applicant, Ms Walden, did not receive her pay in lieu of notice and so she brought an employment tribunal claim against the company. The employment tribunal brought the Secretary of State into the proceedings.

The documents before the tribunal showed that the company was in financial difficulties and Companies' House official documents showed that the company was dissolved.

The tribunal decided that the dissolution together with the financial difficulties made it almost certain that one of the statutory events had occurred, that the company was insolvent and the Secretary of State was responsible for the payments. The Secretary of State appealed. The EAT allowed the appeal on the basis that the employment tribunal decision was perverse and wholly unsupported by evidence. It said that applicants must bring forward some evidence that one of the statutory events has occurred. Had one of the statutory events occurred it would have been capable of direct documentary proof from Companies' House. The absence of such proof suggested that the dissolution of the company could have been for some reason other than insolvency, such as being struck off the register as defunct.

So the applicant's claim had to fail. The only remedy for the applicant was to petition for a winding up order for the company. Anyone who has tried this will know it is a time consuming, slow and costly business. A dissolved company will first of all need to be restored to the roll of companies before it is wound up. If a number of employees are affected it may be possible to pool the costs, but until there is a winding up order in place the Secretary of State via the National Insurance Fund will not pay up. When the amounts of money involved are relatively small, the costs of the winding up petition may be more than the debt owed.

This case is a cautionary tale for those who seek payments from the Secretary of State. 
Where a "statutory event" has occurred evidence can be obtained from Companies House, but if the Company has been dissolved without one of the formal insolvency measures taking place, employees may be left with nothing.

Employees of companies who go out of business are badly served by the law, when a company folds employees are left with few effective remedies and even less money.