Home Knowledge Stepping Into Their Shoes: UK State Insolvency Service Acquires Preferential Status in Irish Liquidation

Stepping Into Their Shoes: UK State Insolvency Service Acquires Preferential Status in Irish Liquidation

June 2, 2010

The Supreme Court of Ireland recently granted the UK Insolvency Service preferential status in the Irish liquidation of the Bell Lines group of shipping and transport companies. The UK Insolvency Service is a state body under the remit of the UK’s Department for Business Innovation and Skills.  Its function is to guarantee certain outstanding employee renumeration claims resulting from contracts of employment in the event of the employer’s insolvency.

The European Court of Justice had previously determined that responsibility for making certain payments to employees of insolvent companies fell on the guarantee institution of the State within whose territory they had worked.  Accordingly, and in compliance with an EC Directive (designed to provide employees with a minimum level of protection in the event of the employer’s insolvency), the UK Insolvency Service had made payments to over 200 UK based Bell employees who had been made redundant from the UK operations of the Irish companies. Part of those sums paid out by the UK Insolvency Service related to employee claims that would have been preferential in Irish liquidations under Irish legislation.

The UK Insolvency Service claimed that a person advancing money to satisfy an employee claim that would otherwise be preferential should have the same priority to which the employee would have been entitled in the winding up. The other creditors resisted the claim on the basis that there was no provision for preferential status for guarantee institutions established in compliance with the EC Directive, other than the rights of the Irish guarantee institution, namely the Redundancy and Employers’ Insolvency Fund.

The Supreme Court concluded that, as the payments were made by the UK Insolvency Service to the employees of the Irish companies in advance of the employee’s rights being discharged in the liquidation, the UK Insolvency Service was entitled to step into the shoes of the employees whose claims it had satisfied and to benefit from the preferential status of those claims.

This decision may be seen as consistent with the preferential treatment afforded to Irish employees in insolvent liquidations. However, the decision could have significant consequences for unsecured creditors of Irish Companies operating in several EU Member States, who may see the pool of assets available to them in an Irish liquidation substantially depleted by the claims of guarantee institutions in several Member States.