Damages for wrongful dismissal are not wages or salary under Insolvency Act 1986

In the matter of Leeds United Association Football Club Ltd (In administration) [2007] EWHC 1761 (Ch)

The High Court has held that damages for wrongful dismissal which would fall due if the administrators were to adopt employment contracts and then subsequently dismiss the employees do not constitute "wages or salary" under the Insolvency Act 1986 and, as such, are not payable in priority to administration expenses. The court also held that damages for wrongful dismissal do not constitute administration expenses (which are payable in priority to the claims of floating charge holders and ordinary creditors).

This case will be of interest to those involved in administrations. Administrators and floating charge holders will be reassured that a claim for damages for wrongful dismissal should rank as an unsecured claim, behind administration expenses and the secured claims of floating charge holders.

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