Landmark case: Administration and the Coronavirus Job Retention Scheme
The High Court of Justice published its first judgment in relation to the Coronavirus Job Retention Scheme (“CJRS”) on Monday 13 April 2020.
The case was brought by the administrators of restaurant chain Carluccio’s Limited which has recently fallen into administration as a result of the COVID-19 crisis.
The administrators were concerned as to how the CJRS would apply to their situation (i.e. as administrators of the company) due to a lack of guidance on the CJRS’ legal structure and how it is intended to operate alongside insolvency legislation.
In particular, the administrators sought a ruling on the legal basis upon which they could pay furloughed employees’ wages in priority which would normally contravene the insolvency rules. Under an administration, the general rule is that money realised from the assets of the company or any money that company holds must be divvied out to the company’s creditors in accordance with the order of priority. If the normal rules were to be applied, the grant received under the CJRS would be required to be paid to the company’s creditors in order of priority and not paid directly to the employees.
The High Court considered the implications of the JRS and held that the administrators are entitled to place the company’s employees on furlough leave and apply for the grant under the CJRS.
The High Court also held the following:-
- The administrators had validly varied the contracts of those employees who had expressly agreed to the variation (following a variation letter being sent to them) so as to put in place a furlough agreement.
- The administrators will be taken to have adopted the contracts of furloughed employees for the purposes of insolvency law when they apply for the grant under the CJRS. This ensures that the employees of Carluccio’s will have a ‘super-priority’ ahead of the administrators’ fees/expenses and the creditors of the company and are paid 80% of their wages using the grant monies as and when this is received by the company under the CJRS.
If you would like any advice on the Coronavirus Job Retention Scheme or any other employment related matter, please contact our Employment Partner, Kate Brooks on 01202 525333 or email firstname.lastname@example.org.