The Carluccio's judgment was released on Easter Monday which addresses the ability of administrators to utilise the government's Coronavirus Job Retention Scheme (CJRS) and the interplay with insolvency legislation.
Faced with an urgent application from the administrators of Carluccio's, Mr Justice Snowden was to determine how administrators can claim under the CJRS and make payment of grant monies received to furloughed employees, whilst not interfering with the statutory order for distribution of company funds. Unfortunately, the CJRS guidance does not provide any assistance in this regard.
The difficulty arises because the CJRS guidance is structured such that the claim for the grant is made by the employer (not the employee) and the grant monies are paid to the employer (not the employee). Accordingly, any grant monies claimed would (by default) become administration assets which must be dealt with in the order of priority prescribed by the Insolvency Act.
In giving his judgment, Mr Justice Snowden acknowledged that administrators claiming under the CJRS must have confidence that they can pay any funds claimed onto the employees (as intended by the government in creating the scheme) rather than into the general pot of administration assets.
In reaching the conclusion that employees could have a priority claim to any funds obtained through the CJRS by the company, Mr Justice Snowden noted following factors:
- Where an administrator seeks and obtains the agreement of employees to apply for funds under the CJRS and thereafter applies for the funding, they are adopting the contracts of employment.
- Even if funds become available to the administrators to make payment of wages to furloughed employees prior to the receipt of funds under the CJRS, that too would amount to adoption of the contracts.
- The adopted contract agreed with the employees gives rise to a liability for which super-priority is given.
Therefore, administrators who apply for a grant under the CJRS are able to apply funds in the payment of wages in super-priority to all other costs and expenses of the administration.
This is doubtless the conclusion which Mr Justice Snowden (and the administrators) wanted to reach all along but it is nonetheless a welcomed decision.
Accordingly, I consider that such steps would enable super-priority payments to be made to the furloughed employees under Paragraph 99(5) using the grant monies as and when received under the Scheme; or in the alternative would enable payments to the employees to be made from other funds of the Company, which would be reimbursed when the grant money was paid.