First High Court Decision on Furlough Scheme – The Administration of Carluccio’s

On 30th March the popular Italian restaurant chain Carluccio’s (founded by “the godfather of Italian gastronomy” Antonio Carluccio, 21 years ago) entered administration, putting at risk its 71 UK restaurants.

The administrators had until yesterday (Bank Holiday Monday) to decide whether to make staff redundant (being the expiry of the 14 day period, after which the administration would have been liable for their employment costs); leading to a rapid hearing to allow for a determination by the court.

Mr Justice Snowden’s High Court judgement, handed down yesterday, confirmed that the Coronavirus Job Retention Scheme could be used by administrators to furlough staff, stating: ‘As I have indicated, it is clearly intended that the Scheme should be available to companies in administration, subject to the proviso that there should be a reasonable likelihood of the employees resuming work either for the company itself or after a sale of the business by the administrators.  Head of Solicitors Title’s corporate practice, Richard James, commented: “Alongside the obvious benefit and security for almost 2000 Carluccio’s employees, the decision gives certainty that a company in administration, as with one that is not, will be able to use the scheme to maintain the workforce, despite the chain’s restaurants being closed (in light of the Government shutdown announced by the Prime Minister on 20 March 2020).  Following Mr Justice Snowden’s decision, the administrators will be able to proceed, knowing that their actions in maintaining staff’s employment will not lead to a worse outcome for creditors and, importantly, will serve to increase the prospects of a rescue deal being achieved, as any buyer would be able to proceed with certainty that the workforce remained intact; with the business effectively “mothballed”, and unable to trade, this was a particularly fundamental point that urgently needed to be clarified, in this particular case.” 

As is usual, the administrators had written to all of Carluccio’s employees inviting them to vary their contracts of employment, to allow for reduced wages that it intended to reclaim  under the JR/furlough scheme, but not all had yet responded.  The variation also permitted the administrators to pay the staff once funds had been received; whereas under the Scheme, employers must pay at the usual time and then make a subsequent reclaim of those costs.

In light of Monday’s deadline, and following the judgment, it is now clear that any employees who were yet to respond to the e-mail/letter could still do so and would also then be furloughed under the scheme, ensuring that the 77 who were yet to respond would not now find themselves being unexpectedly redundant and without a job.

A representative of the union, Unite, commented “This important decision ensures that no one is left behind in a hospitality sector reeling from the effects of the shutdown; it may help save jobs that would otherwise be lost”.

Richard added: “Alongside providing certainty about the application of the Covid-19 Job Retention Scheme, the decision gives some breathing space to administrators whom might otherwise have had to make more drastic decisions, reducing the prospects of them ultimately achieving the best result for creditors, or failing to rescue a well-loved business such as Carluccio’s, as a going concern, that finds itself in this position and which otherwise might forever have been lost.  In the hope that a sale of the business can be achieved, I for one will certainly be booking a table for dinner, once the lockdown is finally over!

We have been considering restructuring opportunities with clients; if you are considering setting up your business differently following the end of this pandemic, do speak with us: contact Richard James.

Furlough Advice

 

 

 

For our wider considerations around coronavirus for businesses see: Covid-19: A Business Perspective

Posted: 14/04/2020
Categories: Covid-19: Response