INSOLVENCY — Administration order — Debts or liabilities incurred by administrator — Administrator adopting contracts of employment — Whether “wages or salary” including liability to pay damages for wrong dismissal — Whether damages payable in priority — Insolvency Act 1986, Sch B1 (as inserted by Enterprise Act 2002, s 248, Sch 16), para 99(4)(5)(6)

In re Leeds United Association Football Club Ltd [2007] EWHC 1761 (Ch)

Ch D: Pumfrey J: 25 July 2007

Damages for wrongful dismissal were not payable in priority to other expenses pursuant to para 99(4) to (6) of Sch B1 to the Insolvency Act 1986.

Pumfrey J so held in the Chancery Division on an application for a declaration by Richard Dixon Fleming, Mark Granville Firman and Howard Smith, the administrators of Leeds United Association Football Club Ltd. The respondents to the application were four of the company’s footballers, David Healy, Jonathan Douglas, Kevin Nicholls and Jermaine Beckford.

The administrators of Leeds United Association Football Club Ltd applied for a declaration that, in the event that they adopted the footballers’ contracts of employment, any liability they might have for damages for future wrongful dismissal would not be payable pursuant to paras 99(4) to (6) of Sch B1 to the Insolvency Act 1986.

PUMFREY J said that by sub-paras (4)–(6) “wages or salary” arising out of a contract of employment adopted by the administrator were payable in priority to all other expenses of the administration, the administrator’s own expenses and sums payable to unsecured creditors. The structure of those sub-paras indicated that the words “wages or salary” had their ordinary meaning and did not extend to liability for damages for wrongful dismissal.

Appearances: William Trower QC and Hilary Stonefrost (Walker Morris) for the administrators. The respondents did not appear and were not represented.

Reported by: Nick Mercer, barrister