This year, our Insolvency and Employment teams collaborated to successfully defend an Employment Tribunal claim made against Francis Clark LLP, the firm of the liquidators of Boundary Precision Engineering Ltd.
The claim was made against both the Liquidators' firm and the Secretary of State for Business, Energy and Industrial Strategy. It was a fairly straight forward case to defend, as it was clear that it was based on a misunderstanding of the relevant rules. However, even a misguided claim needs to be defended as otherwise the Employment Tribunal can issue an automatic judgment in favour of the Claimant. So, we embarked on defending the claim while also trying to persuade the Claimant to withdraw, and applied to the Tribunal for the claim to be struck out on the basis that it had no reasonable grounds of success.
The claim was in relation to statutory redundancy pay, holiday pay and notice pay. The Claimant was a former employee, Finance Director and 50% shareholder of the insolvent company. In May 2013, she took out a substantial director's loan with the company on an unsecured basis. In August 2022, the company engaged Francis Clark LLP to place the company into liquidation, and at the same time the claimant's employment was ended. In September that same year, in her capacity as shareholder, the Claimant passed a written resolution for the company to be voluntarily wound up.
As an employee who was made redundant as a result of the liquidation, the Claimant was entitled to statutory redundancy pay, notice pay and accrued but untaken holiday pay from the company. This would have come to a net payment of £22,178.59. However, the company's statement of affairs, which the Claimant herself signed in August 2023, showed that her director's loan had an outstanding amount owing to the company of £80,381.51; a good deal more than her notice, redundancy and holiday pay combined.
The Insolvency Rules 2016 provide that where sums are owing between a creditor and an insolvent company, there is a mandatory set off with only the balance paid. It would therefore have been unlawful for the Secretary of State to pay the Claimant those sums. However, the Claimant was aggrieved that she had not been paid due to her outstanding director's loan, and was trying to recover the redundancy, notice and or holiday pay through the employment tribunal.
Another hole in the Claimant's case was that neither the Secretary of State nor the liquidators' firm were ever the Claimant's employers. The liquidators had never adopted liability for the company's employees. Claims through the Employment Tribunal can only be brought against current or former employers, or named individuals employed by the same entity.
Cut and dry claims are not common in the employment tribunal, but this seems a rare example. We therefore set about trying to persuade the Claimant to withdraw her claim. In the first instance, we explained to the Claimant why her claim was flawed. While the general position in an Employment Tribunal is that costs are not routinely awarded, if a claim has no reasonable prospects of success, the Employment Tribunal can order the Claimant to pay the other parties' costs, so we explained this to her as well. The Liquidators offered not to pursue her for legal costs if she withdrew her claim. However, the Claimant was adamant that she was entitled to the money and rejected this offer on no uncertain terms.
We then applied to the Tribunal for them to strike out her claim on the grounds that the claims had no reasonable grounds of success, and that it would be unreasonable for her to continue to pursue her claims after we had warned her of this.
A preliminary hearing to consider strike out was held, and during that hearing the Claimant acknowledged that neither the liquidators' firm, nor the liquidators, had never been her employer. The Employment Tribunal Judge carefully explained that the Employment Tribunal therefore could not consider her claim, and that her claims would be very weak even if they were brought through the correct court. In the public judgment issued after this hearing, the Judge commented that: "The position is straightforward… Put bluntly, in circumstances in which she still owes the Company £80,381.51, the Company is not liable to pay her any sums due to her unless and until they exceed that debt which she owes the Company." Following these comments, the Claimant withdrew her claims, before the Judge could strike them out.
This was entirely the right outcome. However, it was also frustrating, because of the requirement to spend time, effort and money defending and disposing of a claim which clearly had no prospects of success from the very start. Our Employment and Insolvency lawyers collaborated in explaining the application of Insolvency law to the Employment Tribunal and we were able to get the claim thrown out at the earliest possible opportunity to reduce the recourses used on the claim as much as possible.
The lesson here is that even ill-founded claims need to be defended, and while they can be a nuisance, with the right approach they can be disposed of efficiently.
