Ten Key Learnings From The Administration Of Carluccio's - A Perfect Storm Of Employment Law, Furloughed Workers And Insolvency

Carluccio's Limited (in administration) [2020] EWHC 886 (Ch)

The devastating effects of COVID-19 and the imposed lockdown on businesses can all too readily be seen with collapse of restaurant chain Carluccio's - one of the first businesses to call in administrators in the early days of the crisis.

In this article, we summarise ten useful takeaways for employees and insolvency practitioners from the High Court judgement in the Carluccio's case.

Insolvencies can be difficult enough without the added impact of the current pandemic. Immediately on appointment, the administrators of Carluccio's faced the challenge of tackling the evolving Coronavirus Job Retention Scheme ("Scheme"), employment law issues and the technicalities of insolvency law against the ticking clock imposed by paragraph 99 of Schedule B1 ("Paragraph 99") of the Insolvency Act 1986 ("Act"). Paragraph 99(5) gives a super priority to certain wages and salary liabilities arising under a contract of employment adopted by an administrator before they leave office - these sums are paid in priority to the administrator's own remuneration and expenses.

Importantly, Paragraph 99(5) provides that action taken within the first 14 days following the administrator's appointment shall not amount to adoption of a contract and no account will be taken of any liability which arises in respect of anything done or which occurs before adoption of the contract of employment. This provision often leads to insolvency practitioners making certain redundancies in the early days of administration.

Facing this situation, and with the 14-day period since appointment running out, the administrators of Carluccio's sought direction from the High Court of Justice on an emergency basis. On 13 April 2020, Mr Justice Snowden issued what would appear to be the first set of (non-binding) directions under paragraph 63 of Schedule B1 of the Act on the complex web of insolvency planning, employee rights and the Scheme.

The full judgement containing the background to the case and the full legal analysis can be found here. However, the background can be summarised as follows:

prior to appointment, all restaurants were immediately subject to the lockdown imposed by the UK Government. On appointment of the administrators, the employees therefore remained employed but were unable to work; the administrators were keen to preserve the possibility of a sale in due course and the value of the business - it was anticipated that making employees redundant could be detrimental to...

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