Home Knowledge Difficulties in Accessing Employer’s Insolvency Fund in the Case of Informal Insolvency

Difficulties in Accessing Employer’s Insolvency Fund in the Case of Informal Insolvency

September 24, 2013

In its decision in In re Davis Joinery Ltd IEHC 353, the High Court identified the difficulties that employees of corporate employers may face when their employer ceases trading without taking any steps to formally wind-up the company.

In the application before the Court, the petitioner, a former employee of Davis Joinery Ltd, sought to have that company wound-up on the ground that it was unable to pay its debts.  The company had failed to pay the petitioner the sum of €53,080 due to him on foot of a finding by the Employment Appeals Tribunal that he had been unfairly dismissed.  The company claimed that it was not in a position to pay the sum due and that it had ceased trading due to financial difficulties.  No steps were taken to wind-up the company voluntarily.

The petitioner’s problem was that without a winding-up order being made in respect of the company, he would have no recourse to the Employer’s Insolvency Fund, a Government scheme which provides for the payment of certain employee entitlements in the event of the insolvency of an employer.  

The Employer’s Insolvency Directive (2008/94/EC) provides a minimum level of protection throughout the EU for employees affected by their employer’s insolvency.  It was transposed into Irish law by the Protection of Employees (Employer’s Insolvency) Act 1984, as amended.  For the purposes of the Irish legislation, a corporate employer is taken to be insolvent only “if a winding up order is made, or a resolution for winding up is passed…”.  This definition of ‘insolvency’ excludes informal insolvencies where a company simply ceases trading without being officially wound-up.  The effect of this is that employees of companies in informal insolvency may be deprived of access to the Employer’s Insolvency Fund.

The Directive, however, recognises that a state of insolvency can arise without the need for a liquidator to be appointed.  It has, therefore, been suggested that the Irish legislation was improperly transposed into Irish law. 

Laffoy J noted that the only manner in which the Court could be of assistance to the petitioner in this case was by making a winding-up order or, alternatively, appointing a provisional liquidator and then making a winding-up order.  Following an adjournment, the petitioner confirmed to the Court that the proposed provisional liquidator had consented to act as official liquidator.  Accordingly, the Court made an order for the winding-up of the company and the appointment of an official liquidator for the purposes of the winding-up.

While this provided a satisfactory remedy for the petitioner in this case, the judge expressed concern for “less fortunate employees” of corporate employers in informal insolvency who are unable to find a liquidator who is willing to act, given that such appointment necessarily involves the incurring of expenditure which the liquidator may not be able to recover.  The judge commented that “unless the issue is successfully litigated by an adversely affected employee… the obvious unfairness inherent in the Act… will only be redressed by legislative change”.

On the basis of her experience in dealing with winding-up petitions, the judge predicted that this is a problem which is likely to affect many employees in the near future.

Contributed by: Delia McMahon