The Court of Appeal has overturned a ruling that gave employees priority over administration fees when companies collapse.

The original ruling, handed down by Mr. Justice Peter Smith, stated that when a company goes into administration, cash owed to employees must take priority over the administrators' fees and administration costs.

After 14 days, the administrators of a company's collapse become responsible for the employment contracts. Justice Smith's ruling would have ringfenced cash for the protective awards these employees would be entitled to, at the expense of the administrator's fees, and legal costs.

According to TheLawyer.com, if Justice Smith's ruling had stood, in similar cases, the administrator could well decide to make all staff redundant, to avoid becoming liable for paying protective awards at a later stage.

The Court of Appeal came to the rescue of administrators and overturned Smith's ruling.

Under UK law when more than 100 employees are to be laid off, the employer must consult with the staff for a period of 90 days before issuing the P45s. If it fails to do so, an employment tribunal can award the employee a so-called protective award, covering salary or wages for a period of up to 90 days. ®

Related stories

• Intel owed depressed employee more than counselling (13 February 2007)
• Ruling blurs meaning of an employee (20 April 2006)
• New Time owners start direct sales (23 January 2006)
• No creditors' meeting for Time/Tiny (26 October 2005)
• Missing assets prompt probe into Granville accounts (17 October 2005)
• Time drags on for Granville administrators (12 September 2005)
• Norwich Union probes IT staff lay-offs (25 August 2005)
• Employees before administrators, says judge (9 August 2005)
• HSBC facing '£19m' loss on Granville collapse (8 August 2005)
• MPs demand Granville Technology probe (5 August 2005)
• Quantum eyes Tiny brand (29 July 2005)
• Tahir Mohsan in talks to save Time jobs (28 July 2005)
• Granville Technology goes into administration (27 July 2005)
• Time shutters stores (26 July 2005)