Insolvency

Administration - adoption of employees' contracts - priority for tax deduction payments on terminationIn re FJL Realisations Ltd: CA (Sir Richard Scott, V-C, Aldous and Sedley LJJ): 10 July 2000

Administration orders were made in 1998 in respect of a manufacturing group of companies.

The administrators continued trading, adopting existing employees' contracts and taking on new employees.

Employees were paid in full after deduction of PAYE and primary and secondary Class 1 NIC.

The administration was unsuccessful and the business of the companies was sold leaving insufficient funds for the payment of liabilities.

The revenue applied for a declaration that the administrators' liabilities for payment of PAYE and NIC had the special priority of the expenses of administration provided by s.

19 of the Insolvency Act 1986, as amended by s.

1 of the Insolvency Act 1994.

The judge (LSG 3 March 2000) granted the declaration.

The administrators appealed.Gabriel Moss QC and Glen Davis (instructed by Norton Rose) for the administrators; Philip Jones (instructed by Solicitor of Inland Revenue) for the revenue.Held, dismissing the appeal, that s.

19 (4)(5) and (6) of the Insolvency Act 1986 was concerned with the allocation of available resources at the termination of an administration and conferred priority on any sums payable in respect of liabilities incurred under new contracts entered into by the administrators in carrying out their functions and any sums payable in respect of pre-existing adopted contracts of employment; and that the judge was correct in concluding that the PAYE and the primary Class 1 NIC deductions were encompassed by the s.

19 provisions but that the secondary Class 1 NIC deductions were not payable in respect of a liability incurred under any such contract and thus did not enjoy special priority.