Employment Protection (Consolidation) Act 1978

Part VII U.K. Insolvency of Employer

F1 121 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.K.

Textual Amendments

F1 S. 121 repealed by Insolvency Act 1985 (c. 65, SIF 66), s. 235, Sch. 10 Pt. IV

122 Employee’s rights on insolvency of employer. E+W+S

(1) If on an application made to him in writing by an employee the Secretary of State is satisfied—

(a) that the employer of that employee has become insolvent; and

[F2 (aa) that the employment of the employee has been terminated; and]

(b) that on the relevant date the employee was entitled to be paid the whole or part of any debt to which this section applies,

the Secretary of State shall, subject to the provisions of this section, pay the employee out of [F3 the National Insurance Fund] the amount to which in the opinion of the Secretary of State the employee is entitled in respect of that debt.

[F4 (2) In this section “the relevant date”—

(a) in relation to arrears of pay (not being remuneration under a protective award made under [F5 section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992]) and to holiday pay, means the date on which the employer became insolvent;

(b) in relation to such an award and to a basic award of compensation for unfair dismissal, means whichever is the latest of—

(i) the date on which the employer became insolvent;

(ii) the date of the termination of the employee’s employment; and

(iii) the date on which the award was made;

(c) in relation to any other debt to which this section applies, means whichever is the later of the dates mentioned in sub-paragraphs (i) and (ii) of paragraph (b).]

(3) This section applies to the following debts:—

[F6 (a) any arrears of pay in respect of one or more (but not more than eight) weeks;]

(b) any amount which the employer is liable to pay the employee for the period of notice required by section 49(1) or (2) or for any failure of the employer to give the period of notice required by section 49(1);

[F7 (c) any holiday pay—

(i) in respect of a period or periods of holiday not exceeding six weeks in all; and

(ii) to which the employee became entitled during the twelve months ending with the relevant date;]

(d) any basic award of compensation for unfair dismissal (within the meaning of section 72);

(e) any reasonable sum by way of reimbursement of the whole or part of any fee or premium paid by an apprentice or articled clerk.

[F8 (4) For the purposes of this section, the following amounts shall be treated as arrears of pay, namely—

(a) a guarantee payment;

(b) remuneration on suspension on medical grounds under section 19;

(c) any payment for time off under [F9 section 31(3) or 31A(4) or under section 169 of the Trade Union and Labour Relations (Consolidation) Act 1992];

(d) remuneration under a protective award made under [F10 section 189 of that Act];

(e)]

F11 (5) The total amount payable to an employee in respect of any debt mentioned in subsection (3), where the amount of that debt is referable to a period of time, shall not exceed [F12 £205.00] in respect of any one week or, in respect of a shorter period, an amount bearing the same proportion to [F12 £205.00] as that shorter period bears to a week.

(6) The Secretary of State may vary the limit referred to in subsection (5) after a review under section 148, by order made in accordance with that section.

(7) A sum shall be taken to be reasonable for the purposes of subsection (3)(e) in a case where a trustee in bankruptcy or liquidator has been or is required to be appointed if it is admitted to be reasonable by the trustee in bankruptcy or liquidator under [F13 section][F14 348 of the M1 Insolvency Act 1986] (effect of bankruptcy on apprenticeships etc.), whether as originally enacted or as applied to the winding up of a company by rules under [F14 section 411 of that Act].

(8) Subsection (7) shall not apply to Scotland, but in Scotland a sum shall be taken to be reasonable for the purposes of subsection (3)(e) in a case where a trustee in bankruptcy or liquidator has been or is required to be appointed if it is [F15 accepted] by the trustee in bankruptcy or the liquidator for the purposes of the bankruptcy or winding up.

(9) The provisions of subsections (10) and (11) shall apply in a case where one of the following officers (hereafter in this section referred to as the “relevant officer”) has been or is required to be appointed in connection with the employer’s insolvency, that is to say, a trustee in bankruptcy, a liquidator, [F16 an administrator,] a receiver or manager, or a trustee under a composition or arrangement between the employer and his creditors or under a trust deed for his creditors executed by the employer; and in this subsection [F17 “trustee”, in relation to a composition or arrangement, includes the supervisor of a][F14 voluntary arrangement proposed for the purposes of, and approved under, Part I or VIII of the Insolvency Act 1986].

(10) Subject to subsection (11), the Secretary of State shall not in such a case make any payment under this section in respect of any debt until he has received a statement from the relevant officer of the amount of that debt which appears to have been owed to the employee on the relevant date and to remain unpaid; and the relevant officer shall, on request by the Secretary of State, provide him, as soon as reasonably practicable, with such a statement.

[F18 (11) If the Secretary of State is satisfied that he does not require such a statement in order to determine the amount of the debt that was owed to the employee on the relevant date and remains unpaid, he may make a payment under this section in respect of the debt without having received such a statement.]

Textual Amendments

F2 S. 122(1)(aa) inserted by Insolvency Act 1985 (c. 65, SIF 66), s. 218(2)

F3 Words substituted by Employment Act 1990 (c. 38, SIF 43:5), s. 16(1), Sch. 2 para. 1(4)

F4 S. 122(2) substituted by Insolvency Act 1985 (c. 65, SIF 66), s. 218(3)

F5 Words in s. 122(2)(a) substituted (16.10.1992) by Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52), ss. 300(2), 302, Sch. 2 para. 18(2).

F6 S. 122(3)(a) substituted by Employment Act 1982 (c. 46, SIF 43:5), Sch. 3 para. 4(2) with saving in S.I. 1982/1656, Sch. 2

F7 S. 122(3)(c) substituted by Employment Act 1982 (c. 46, SIF 43:5), Sch. 3 para. 4(3) with saving in S.I. 1982/1656, Sch. 2

F8 S. 122(4) substituted by Insolvency Act 1985 (c. 65, SIF 66), s. 218(4)

F9 Words in s. 122(4)(c) substituted (16.10.1992) by Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52), ss. 300(2), 302, Sch. 2 para. 18(3)(a).

F10 Words in s. 122(4)(d) substituted (16.10.1992) by Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52), ss. 300(2), 302, Sch. 2 para. 18(3)(b).

F11 Words repealed by Social Security Act 1986 (c. 50, SIF 113:1), s. 86(2), Sch. 11

F12 Words in s. 122(5) substituted (1.4.1992) by virtue of S.I. 1992/312, art. 2 (with effect as specified in art. 3).

F13 Words substituted by Insolvency Act 1985 (c. 65, SIF 66), s. 218(5)

F14 Words substituted by Insolvency Act 1986 (c. 45, SIF 66), s. 439(2), Sch. 14

F15 Word “accepted" substituted (S.) for “admitted" by Bankruptcy (Scotland) Act 1985 (c. 66, SIF 66), s. 75(1), Sch. 7 para. 14(2)

F16 Words inserted by Insolvency Act 1985 (c. 65, SIF 66), s. 218(6)(a)

F17 Words substituted by Insolvency Act 1985 (c. 65, SIF 66), s. 218(6)(b)

F18 S. 122(11) substituted by Employment Act 1989 (c. 38, SIF 43:1), ss. 18(2), 29(6), Sch. 9 para. 4(1)

Modifications etc. (not altering text)

C1 S. 122 restricted by Dock Work Act 1989 (c. 13, SIF 43:5), s. 7(5), Sch. 2 para. 7(2)

C2 S. 122 modified by Dock Work Act 1989 (c. 13, SIF 43:5), s. 7(5), Sch. 2 para. 7(2)(a)

Marginal Citations

M1 1986 c. 45

123 Payment of unpaid contributions to occupational pension scheme. E+W+S

(1) If, on application made to him in writing by the persons competent to act in respect of an occupational pension scheme [F19 or a personal pension scheme], the Secretary of State is satisfied that an employer has become insolvent and that at the time that he did so there remained unpaid relevant contributions falling to be paid by him to the scheme, the Secretary of State shall, subject to the provisions of this section, pay into the resources of the scheme out of [F20 the National Insurance Fund] the sum which in his opinion is payable in respect of the unpaid relevant contributions.

(2) In this section “relevant contributions” means contributions falling to be paid by an employer [F21 to an occupational pension scheme or a personal pension scheme], either on his own account or on behalf of an employee; and for the purposes of this section a contribution of any amount shall not be treated as falling to be paid on behalf of an employee unless a sum equal to that amount has been deducted from the pay of the employee by way of a contribution from him.

(3) The sum payable under this section in respect of unpaid contributions of an employer on his own account to an occupational pension scheme [F19 or a personal pension scheme] shall be the least of the following amounts—

(a) the balance of relevant contributions remaining unpaid on the date when he became insolvent and payable by the employer on his own account to the scheme in respect of the twelve months immediately preceding that date;

(b) the amount certified by an actuary to be necessary for the purpose of meeting the liability of the scheme on dissolution to pay the benefits provided by the scheme to or in respect of the employees of the employer;

(c) an amount equal to ten per cent. of the total amount of remuneration paid or payable to those employees in respect of the twelve months immediately preceding the date on which the employer became insolvent.

(4) For the purposes of subsection (3)(c), “remuneration” includes holiday pay, [F22 statutory sick pay, statutory maternity pay under Part V of the Social Security Act [F23 1986 or Part XII of the Social Security Contributions and Benefits Act 1992,] maternity pay under Part III of this Act] and any such payment as is referred to in [F24 section 122(4)].

(5) Any sum payable under this section in respect of unpaid contributions on behalf of an employee shall not exceed the amount deducted from the pay of the employee in respect of the employee’s contributions to the F25 scheme during the twelve months immediately preceding the date on which the employer became insolvent

(6) The provisions of subsections (7) to (9) shall apply in a case where one of the following officers (hereafter in this section referred to as the “relevant officer”) has been or is required to be appointed in connection with the employer’s insolvency, that is to say, a trustee in bankruptcy, a liquidator [F26 an administrator], a receiver or manager, or a trustee under a composition or arrangement between the employer and his creditors or under a trust deed for his creditors executed by the employer; and in this subsection [F27 “trustee”, in relation to a composition or arrangement, includes the supervisor of a [F28 voluntary arrangement proposed for the purposes of, and approved under, Part I or VIII of the Insolvency Act 1986]].

(7) Subject to subsection (9), the Secretary of State shall not in such a case make any payment under this section in respect of unpaid relevant contributions until he has received a statement from the relevant officer of the amount of relevant contributions which appear to have been unpaid on the date on which the employer became insolvent and to remain unpaid; and the relevant officer shall, on request by the Secretary of State provide him, as soon as reasonably practicable, with such a statement.

(8) Subject to subsection (9), an amount shall be taken to be payable, paid or deducted as mentioned in subsection (3)(a) or (c) or subsection (5), only if it is so certified by the relevant officer.

[F29 (9) If the Secretary of State is satisfied—

(a) that he does not require a statement under subsection (7) in order to determine the amount of relevant contributions that was unpaid on the date on which the employer became insolvent and remains unpaid, or

(b) that he does not require a certificate under subsection (8) in order to determine the amounts payable, paid or deducted as mentioned in subsections (3)(a) and (c) and (5),

he may make a payment under this section in respect of the contributions in question without having received such a statement or (as the case may be) such a certificate.]

Textual Amendments

F19 Words inserted by Social Security Act 1986 (c. 50, SIF 113:1), s. 86(1), Sch. 10 Pt. I para. 31(1)(a)

F20 Words substituted by Employment Act 1990 (c. 38, SIF 43:5), s. 16(1), Sch. 2 para. 1(4)

F21 Words inserted by Social Security Act 1986 (c. 50, SIF 113:1), s. 86(1), Sch. 10 Pt. I para. 31(2)

F22 Words substituted by Social Security Act 1986 (c. 50, SIF 113:1), s. 86(1), Sch. 10 Pt. IV para. 76

F23 Words in s. 123(4) substituted (1.7.1992) by virtue of Social Security (Consequential Provisions) Act 1992 (c. 6), ss. 4, 7(2), Sch. 2 para.49.

F24 Words substituted by Insolvency Act 1985 (c. 65, SIF 66), s. 235(1), Sch. 8 para. 31(3)

F25 Words repealed by Social Security Act 1986 (c. 50 SIF 113:1), s. 86(2), Sch. 11

F26 Words inserted by Insolvency Act 1985 (c. 65, SIF 66), s. 235(1), Sch. 8 para. 31(3)(b)(i)

F27 Words substituted by Insolvency Act 1985 (c. 65, SIF 66), s. 235, Sch. 8 para. 31(3)(b)(ii)

F28 Words substituted by Insolvency Act 1986 (c. 45, SIF 66), s. 439(2), Sch. 14

F29 S. 123(9) substituted by Employment Act 1989 (c. 38, SIF 43:1), ss. 18(3), 29(6), Sch. 9 para. 4(1)

Modifications etc. (not altering text)

C3 S. 123 restricted by Dock Work Act 1989 (c. 13, SIF 43:5), s. 7(5), Sch. 2 para. 7(2)

C4 S. 123 modified by Dock Work Act 1989 (c. 13, SIF 43:5), s. 7(5), Sch. 2 para. 7(2)(b)

124 Complaint to industrial tribunal. E+W+S

(1) A person who has applied for a payment under section 122 may, within the period of three months beginning with the date on which the decision of the Secretary of State on that application was communicated to him or, if that is not reasonably practicable, within such further period as is reasonable, present a complaint to an industrial tribunal that—

(a) the Secretary of State has failed to make any such payment; or

(b) any such payment made by the Secretary of State is less than the amount which should have been paid.

(2) Any persons who are competent to act in respect of an occupational pension scheme [F30 or a personal pension scheme] and who have applied for a payment to be made under section 123 into the resources of the scheme may, within the period of three months beginning with the date on which the decision of the Secretary of State on that application was communicated to them, or, if that is not reasonably practicable, within such further period as is reasonable, present a complaint to an industrial tribunal that—

(a) the Secretary of State has failed to make any such payment; or

(b) any such payment made by him is less than the amount which should have been paid.

(3) Where an industrial tribunal finds that the Secretary of State ought to make a payment under section 122 or 123, it shall make a declaration to that effect and shall also declare the amount of any such payment which it finds the Secretary of State ought to make.

Textual Amendments

F30 Words inserted by Social Security Act 1986 (c. 50, SIF 113:1), s. 86(1), Sch. 10 Pt. I para. 31(1)(b)

125 Transfer to Secretary of State of rights and remedies. E+W+S

(1) Where, in pursuance of section 122, the Secretary of State makes any payment to an employee in respect of any debt to which that section applies—

(a) any rights and remedies of the employee in respect of that debt (or, if the Secretary of State has paid only part of it, in respect of that part) shall, on the making of the payment, become rights and remedies of the Secretary of State; and

(b) any decision of an industrial tribunal requiring an employer to pay that debt to the employee shall have the effect that the debt or, as the case may be, that part of it which the Secretary of State has paid, is to be paid to the Secretary of State.

[F31 (2) Where a debt or any part of a debt in respect of which the Secretary of State has made a payment in pursuance of section 122 constitutes—

(a) a preferential debt within the meaning of the Insolvency Act 1986 for the purposes of any provision of that Act (including any such provision as applied by any order made under that Act) or any provision of the Companies Act 1985; or

(b) a preferred debt within the meaning of the Bankruptcy (Scotland) Act 1985 for the purposes of any provision of that Act (including any such provision as applied by section 11A of the Judicial Factors (Scotland) Act 1889),

then, without prejudice to the generality of subsection (1) above, there shall be included among the rights and remedies which become rights and remedies of the Secretary of State in accordance with that subsection any right arising under any such provision by reason of the status of the debt or that part of it as a preferential or preferred debt.

(2A) In computing for the purposes of any provision mentioned in subsection (2)(a) or (b) above the aggregate amount payable in priority to other creditors of the employer in respect of—

(a) any claim of the Secretary of State to be so paid by virtue of subsection (2) above; and

(b) any claim by the employee to be so paid made in his own right,

any claim falling within paragraph (a) above shall be treated as if it were a claim of the employee; but the Secretary of State shall be entitled, as against the employee, to be so paid in respect of any such claim of his (up to the full amount of the claim) before any payment is made to the employee in respect of any claim falling within paragraph (b) above.]

(3) Where in pursuance of section 123 the Secretary of State makes any payment into the resources of an occupational pension scheme [F32 or a personal pension scheme] in respect of any contributions to the scheme, any rights and remedies in respect of those contributions belonging to the persons competent to act in respect of the scheme shall, on the making of the payment, become rights and remedies of the Secretary of State.

[F33 (3A) Where the Secretary of State makes any such payment as is mentioned in subsection (3) above and the sum (or any part of the sum) falling to be paid by the employer on account of the contributions in respect of which the payment is made constitutes—

(a) a preferential debt within the meaning of the Insolvency Act 1986 for the purposes of any provision mentioned in subsection (2)(a) above; or

(b) a preferred debt within the meaning of the Bankruptcy (Scotland) Act 1985 for the purposes of any provision mentioned in subsection (2)(b) above,

then, without prejudice to the generality of subsection (3) above, there shall be included among the rights and remedies which become rights and remedies of the Secretary of State in accordance with that subsection any right arising under any such provision by reason of the status of that sum (or that part of it) as a preferential or preferred debt.

(3B) In computing for the purposes of any provision referred to in subsection (3A)(a) or (b) above the aggregate amount payable in priority to other creditors of the employer in respect of—

(a) any claim of the Secretary of State to be so paid by virtue of subsection (3A) above; and

(b) any claim by the persons competent to act in respect of the scheme,

any claim falling within paragraph (a) above shall be treated as if it were a claim of those persons; but the Secretary of State shall be entitled, as against those persons, to be so paid in respect of any such claim of his (up to the full amount of the claim) before any payment is made to them in respect of any claim falling within paragraph (b) above.]

(4) Any sum recovered by the Secretary of State in exercising any right or pursuing any remedy which is his by virtue of this section shall be paid into [F34 the National Insurance Fund].

Textual Amendments

F31 S. 125(2)(2A) substituted (with saving) for s. 125(2), by Employment Act 1989 (c. 38, SIF 43:1), ss. 19(1), 29(6), Sch. 9 paras. 4(1), 5

F32 Words inserted by Social Security Act 1986 (c. 50, SIF 113:1), s. 86(1), Sch. 10 Pt. I para. 31(1)(c)

F33 S. 125(3A)(3B) inserted by Employment Act 1989 (c. 38, SIF 43:1), ss. 19(2), 29(6), Sch. 9 paras. 4(1), 5

F34 Words substituted by Employment Act 1990 (c. 38, SIF 43:5), s. 16(1), Sch. 2 para. 1(4)

126 Power of Secretary of State to obtain information in connection with applications. E+W+S

(1) Where an application is made to the Secretary of State under section 122 or 123 in respect of a debt owed, or contributions to an occupational pension scheme [F35 or a personal pension scheme] falling to be made, by an employer, the Secretary of State may require—

(a) the employer to provide him with such information as the Secretary of State may reasonably require for the purpose of determining whether the application is well-founded; and

(b) any person having the custody or control of any relevant records or other documents to produce for examination on behalf of the Secretary of State any such document in that person’s custody or under his control which is of such a description as the Secretary of State may require.

(2) Any such requirement shall be made by notice in writing given to the person on whom the requirement is imposed and may be varied or revoked by a subsequent notice so given.

(3) If a person refuses or wilfully neglects to furnish any information or produce any document which he has been required to furnish or produce by a notice under this section he shall be liable on summary conviction to a fine not exceeding [F36 level 3 on the standard scale].

(4) If a person, in purporting to comply with a requirement of a notice under this section, knowingly or recklessly makes any false statement he shall be liable on summary conviction to a fine not exceeding [F36 level 5 on the standard scale].

Textual Amendments

F35 Words inserted by Social Security Act 1986 (c. 50, SIF 113:1), s. 86(1), Sch. 10 Pt. I para. 31(1)(d)

F36 Words substituted by virtue of Criminal Justice Act 1982 (c. 48, SIF 39:1), ss. 38, 46 and Criminal Procedure (Scotland) Act 1972 (c. 21, SIF 39:1), ss. 289F, 289G (as inserted by Criminal Justice Act 1982 (c. 48, SIF 39:1), s. 54)

127 Interpretation of ss. 122 to 126. E+W+S

(1) For the purposes of sections 122 to 126, an employer shall be taken to be insolvent if, but only if, in England and Wales,—

[F37 (a) he has been adjudged bankrupt or has made a composition or arrangement with his creditors;

(b) he has died and his estate falls to be administered in accordance with an order under section [F38 421 of the Insolvency Act 1986]; or]

(c) where the employer is a company, a winding up order [F39 or an administration order] is made or a resolution for voluntary winding up is passed with respect to it, or a receiver or manager of its undertaking is duly appointed, or possession is taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge [F39 or a [F38 voluntary arrangement proposed for the purposes of Part I of the Insolvency Act 1986 is approved under that Part]].

(2) For the purposes of sections 122 to 126, an employer shall be taken to be insolvent if, but only if, in Scotland,—

(a) [F40 sequestration of his estate is awarded] or he executes a trust deed for his creditors or enters into a composition contract;

(b) he has died and a judicial factor appointed under section [F41 163 of the M2 Bankruptcy (Scotland) Act 1913][F41 11A of the Judicial Factors (Scotland) Act 1889] is required by that section to divide his insolvent estate among his creditors; or

(c) where the employer is a company, a winding-up order [F39 or an administration order] is made or a resolution for voluntary winding up is passed with respect to it or a receiver of its undertaking is duly appointed [F39 or a [F38 voluntary arrangement proposed for the purposes of Part I of the Insolvency Act 1986 is approved under that Part ]].

(3) In sections 122 to 126—

• “holiday pay” means—

(a) pay in respect of a holiday actually taken; or

(b) any accrued holiday pay which under the employee’s contract of employment would in the ordinary course have become payable to him in respect of the period of a holiday if his employment with the employer had continued until he became entitled to a holiday;

• “occupational pension scheme” means any scheme or arrangement which provides or is capable of providing, in relation to employees in any description of employment, benefits (in the form of pensions or otherwise) payable to or in respect of any such employees on the termination of their employment or on their death or retirement;

• [F42 “personal pension scheme” means any scheme or arrangement which is comprised in one or more instruments or agreements and which has, or is capable of having, effect so as to provide benefits, in the form of pensions or otherwise, payable on death or retirement to or in respect of employees who have made arrangements with the trustees or managers of the scheme for them to become members of the scheme;]

and any reference in those sections to the resources of F43 a scheme is a reference to the funds out of which the benefits provided by the scheme are from time to time payable.

Textual Amendments

F37 S. 127(1)(a)(b) substituted by Insolvency Act 1985 (c. 65, SIF 66), s. 235(1), Sch. 8 Pt. I para. 31(5)(a)

F38 Words substituted by Insolvency Act 1986 (c. 45, SIF 66), s. 439(2), Sch. 14

F39 Words inserted by Insolvency Act 1985 (c. 65, SIF 66), s. 235, Sch. 8 Pt. I para. 31(5)(b)

F40 Words substituted by Employment Act 1989 (c. 38, SIF 43:1), s. 29(3), (6), Sch. 6 para. 23, Sch. 9 para. 4(1)

F41 Words from “11A" to “1889" substituted (S.) for words from “163" to “1913" by Bankruptcy (Scotland) Act 1985 (c. 66, SIF 66), s. 75(1), Sch. 7 para. 14(4)

F42 Definition inserted by Social Security Act 1986 (c. 50, SIF 113:1), s. 86(1), Sch. 10 Pt. I para. 31(3)

F43 Word repealed by Social Security Act 1986 (c. 50, SIF 113:1), s. 86(2), Sch. 11

Marginal Citations

M2 1913 c. 20.