Mann v Secretary of State for Employment

Abstract

The interrelationship between insolvency, the rights of creditors, and the particular rights of creditors who are employees of the insolvent organisation is complex and controversial, even at the purely domestic level. The longstanding concern of the European Union for the welfare of employees, including employees of insolvent employers, has made for further complexity and controversy as courts struggle with the interpretation and application of legal principles which derive from two different legal systems. Insolvency law has properly been described as 'characterised by special procedures intended to weigh up the various interests involved, in particular those of the various classes of creditors, which implies that ... there are specific rules which may derogate, at least partially, from other provisions, of a general nature, including provisions of social law'.' By definition, the claims of the creditors of an insolvent debtor cannot be met in full and it is one of the chief tasks of the principles of insolvency, to establish a hierarchy of creditors in accordance with which the inadequate resources of the debtor are to be deployed. It is a principle of any system of insolvency that all creditors on the highest level are to be paid in full before any payment can be made to creditors on the next level down and so on until the money runs out. In principle, secured creditors, that is creditors who are entitled to look for payment to the proceeds of the sale of particular assets belonging to the debtor, will consume the lion's share of the debtor's assets, leaving scraps, if anything, to the unsecured creditors. The claims of the latter are often described as simply personal (i.e. against the person of the debtor alone and not protected by any property owned by the latter). A further distinction should be observed preferential creditors groups of unsecured creditors on whom statute has conferred priority over other unsecured creditors. In the UK, the groups so preferred are essentially the government (e.g. income tax, customs and excise and social security contributions) and employees (in respect of unpaid remuneration and accrued holiday remuneration).2 In the United Kingdom, there is a variety of insolvency regimes in which a debtor may be placed. Business debtors are most likely to be in the form of companies incorporated under the Companies Acts,3 and when insolvent and in the absence of agreement among all creditors to refrain from proceedings to enforce their claims, will be placed in liquidation or administrative receivership or