No priority for damages

In re Leeds United Association Football Club Ltd ChD TLR 4 September

The administrators of Leeds United Association Football Club Ltd were considering whether to adopt the contracts of employment of four footballers. If those contracts were adopted and subsequently terminated before the expiry of the fixed term, the liability that the company might incur for summary dismissal of the players was in the region of £2.2m. The administrators sought a declaration from the court that such damages would not be payable in priority to other expenses under paragraph 99(4) of Schedule 1B of the Insolvency Act 1986, as inserted by s248 of the Enterprise Act 2002. By sub-paragraphs 99(4) and (5), a liability to pay ‘wages or salary’ under an adopted contract of employment takes priority over all other expenses in the administration, the administrators’ own expenses and sums payable to unsecured creditors.