Two recent judicial decisions highlight the importance of taking specialist employment and insolvency advice when dealing with employees in an insolvency or restructuring situation.
The first case centres on a group employment tribunal action brought by 200 former employees of now defunct law firm King & Wood Malleson (KWM), the employees claim that the firm failed to follow collective redundancy consultation procedures. KWM, acting via its administrators, admit that the consultation process ended too soon as a result of the firm entering administration and have offered each employee almost £4,000 to settle the claim. This could potentially lead to the administrators having to compensate the affected creditors of the company for the additional liability caused by their omission. This case is a timely reminder of the importance of administrators following collective redundancy rules carefully.
In the second decision, Officeserve Technologies Ltd (in liquidation) and another v Anthony-Mike  2017] EWHC 1920 (Ch), the High Court declared that a settlement agreement made between the company and one of its directors after the presentation of a winding up petition is void under s127 Insolvency Act 1986. The settlement agreement was consequently ineffective in protecting the director from claims issued against him by the liquidator, and also the possibility of employment-related claims in the liquidation by the director were re-opened. Finally, the liquidator was entitled to recover sums paid to the director under the settlement agreement.
This is the first reported decision of a court considering whether a settlement agreement with a director constitutes a disposition of property and is therefore voidable under s127. The prospective parties to these arrangements should, after the presentation of a winding up petition, seek an order from the court prospectively to validate the settlement agreement. Such an order would act as a safeguard against the potential loss of property. It would be unwise to rely on retrospective validation, as demonstrated in Officeserve, when the High Court refused to exercise its discretion to retrospectively validate, relying on the Court of appeal decision in Express Electrical Distributors Ltd v Beavis  EWCA Civ 765. Further, directors authorising post-petition settlement agreements of other employees could be liable for misfeasance under section 212 Insolvency Act 1986.
Our employment team are experienced in advising stakeholders in restructuring and insolvency processes including office holders and third parties. Dealing with employee claims and settlements when a company is in a form of insolvency process or is potentially insolvent requires careful consideration and those involved should seek specialist advice.