• news-banner

    Expert Insights

Furlough and administration – the cases of Carluccio’s and Debenhams

We take a look at two recent High Court decisions on the impact of the government’s Coronavirus Job Retention Scheme on companies in administration. 

Carluccio’s – Administrators placing employees on furlough

The High Court in Re Carluccio's Ltd (in administration) held that the employment contracts of Carluccio’s employees had been validly varied when they agreed to the administrators’ proposal to furlough them under the government's Coronavirus Job Retention Scheme (the Scheme).   Under the furlough agreement, they were to be paid at the rates under the Scheme and limited to what was recoverable.

The administrators applied to the Court as they were concerned that any monies would be paid to them (rather than directly to the employees) and would therefore constitute assets of the administration.  The Court held that when the administrators made the claim under the Scheme, or made any payment under a varied contract, the effect was that they had “adopted” the contract of employment under insolvency law.  The effect of this was to give the employees super-priority ahead of payment of the administrators’ fees and expenses, floating charge creditors and unsecured creditors.   Therefore on receipt of the grant under the Scheme, payment could be made to the employees.  

Although almost all the employees had agreed to be furloughed, there was a small group who had not replied to the administrator’s furlough proposal.  The Court held that there had not been sufficient time for there to be consent by conduct in this particular case.  If those employees did subsequently agree, they would be in the same position as those who had already agreed.  However, the unvaried contracts of employees who did not reply would not be considered to be “adopted” with the result that the administrators did not need to dismiss them in order to avoid incurring super-priority liability in respect of them.  

Debenhams – Employees placed on furlough before administration

The High Court in Re Debenhams Retail Ltd considered how the Scheme may be implemented by administrators where the company had furloughed employees before the start of the administration.

The directors of Debenhams had placed its employees on furlough on the basis that the Scheme would apply to them and that their wages or salary would be payable only to the extent reimbursable under the Scheme. The directors did not ask the employees to consent to the arrangements. 

When administrators were subsequently appointed they were concerned that they would be deemed to have adopted the contracts of employment and that the super-priority accorded to the payments due to the employees would catch not only the amounts recoverable under the Scheme but also other amounts, such as additional wages or salary, sick pay and holiday pay. The administrators sought the express consent of employees to arrangements that capped their entitlement to wages or salary at the amount the company was able to claim from the Scheme and a large number of employees consented.

The administrator sought directions as to whether they could continue with the Scheme arrangements in relation to the employees without being deemed to have adopted the contracts of employment.  In line with the Carluccio’s decision, the court held that the administrators would be deemed to adopt the contracts of employment when they made a claim under the Scheme or when they paid wages to furloughed employees.  Although the decision exposes the administrators to priority liabilities, the fact that the vast majority of the employees consented to a cap on their entitlements had in fact largely mitigated the exposure before the case was heard.  This shows the importance of the administrators taking action to try to limit exposure to what is recoverable under the Scheme. 

Our thinking

  • Mental Health Management

    Nick Hurley

    Events

  • Arbitration Act 1996: Law Commission recommends limited changes

    Richard Kiddell

    Insights

  • Charles Russell Speechlys advises Nortal on its acquisition of Questers

    Hamish Perry

    News

  • Family and Employment law assistance in legal advice deserts

    Sarah Farrelly

    News

  • Property Patter: the latest on the Building Safety Act

    Richard Flenley

    Podcasts

  • James Souter writes for City AM on Meta pulling out of its London office

    James Souter

    In the Press

  • A Labour government: what might be in store for personal taxation?

    Sarah Wray

    Quick Reads

  • Charles Russell Speechlys advises Puma Private Equity on its £3.5 million investment into TravelLocal

    David Coates

    News

  • Georgina Muskett and Karin Mouhon write for Property Week on the importance of preparation when proposing site redevelopments

    Karin Mouhon

    In the Press

  • The Evening Standard quotes Rose Carey on the increase in visa fees

    Rose Carey

    In the Press

  • Spears quotes Piers Master on the potential exodus of UHNW non-doms from the UK ahead of a potential Labour government

    Piers Master

    In the Press

  • Charles Russell Speechlys advises Zenzero’s management team on its majority acquisition by Macquarie Capital

    Mark Howard

    News

  • David Savage writes for Construction News on the upcoming building-control overhaul

    David Savage

    In the Press

  • Heritage property and conditional exemption

    Sarah Wray

    Insights

  • Property Week quotes Cara Imbrailo on Rishi Sunak scrapping MEES requirements for residential landlords

    Cara Imbrailo

    In the Press

  • The Financial Times quotes Emma Humphreys on UK rental costs

    Emma Humphreys

    In the Press

  • City AM quotes Gareth Mills on the CMA’s new set of principles for regulating AI

    Gareth Mills

    In the Press

  • Hamish Perry and Mike Barrington write for The Evening Standard on whether a merger between the CBI and Make UK can work

    Hamish Perry

    In the Press

  • Silicon quotes Gareth Mills on the UK consumer lawsuit against Google

    Gareth Mills

    In the Press

  • EG quotes Alison Goldthorp on WeWork's restructuring plans

    Alison Goldthorp

    In the Press

  • Property Week quotes Louise Ward on the additional support required by aspiring UK life sciences operators

    Louise Ward

    In the Press

  • Office to Lab Conversions: A new lease of life (sciences) for some of London’s offices?

    Georgina Muskett

    Quick Reads

  • The Family Fund: Bank of Mum & Dad 2.0

    Vanessa Duff

    Quick Reads

  • The perpetual struggle between the environment, heritage and development: the M&S decision vs 55 Bishopsgate

    Sophie Willis

    Quick Reads

  • Treasury Committee endorses mandatory venture capital diversity policies from 2025

    Lia Renna

    Quick Reads

  • Oops!....I did it again - Britney's third divorce

    Charlotte Posnansky

    Quick Reads

  • Recognising financial abuse in a relationship

    Vanessa Duff

    Quick Reads

  • Making BitCoin a BitClearer

    Charlotte Posnansky

    Quick Reads

  • Key takeaways from the UK Government's "Green Day"

    Martha Glaser

    Quick Reads

  • From Holby City to 5 Fleet Place - David Ames shares his experience of "Behind the Lens" with CRS

    Quick Reads

  • The Domestic Abuse Act 2021 in Action

    Sophia Leeder

    Quick Reads

  • This week in the news: inheritance tax interest costs rising due to Probate delays

    Sarah Wray

    Quick Reads

  • WhatsAppGate - Should businesses be reviewing their social media policies?

    Anna Rogers

    Quick Reads

  • Dubai announces its plan to streamline the enforcement of civil judgments and arbitral awards

    Peter Smith

    Quick Reads

  • Time to turn down the lights

    Eddie Richards

    Quick Reads

  • Losing their (Elgin) marbles? British Museum and Greek government fail to reach agreement on the Parthenon sculptures

    Louise Paterson

    Quick Reads

  • Youth Mobility Scheme visa category: now open!

    Kayleigh McKee

    Quick Reads

  • Part 1: The Tip of the Triangle – Examining London’s Potential in the Life Sciences Sector

    Amy Shuttleworth

    Quick Reads

  • Reporting Restriction Order (reprised) - "Where there is no publicity there is no justice."

    Charlotte Posnansky

    Quick Reads

  • Mixed-use development and Sustainability is at the heart of Life Sciences Development

    Fiona Edmond

    Quick Reads

Back to top