Insolvency
Cases
Hogan, v Minister for Social and Family Affairs, Ireland
[2013] IRLR 668, [2013] EUECJ C-398/11, [2013] Pens LR 185, [2013] 3 CMLR 27
Judgment
1 This request for a preliminary ruling concerns the interpretation of Articles 1 and 8 of Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection of employees in the event of the insolvency of their employer (OJ 2008 L 283, p. 36).
2 The request has been made in proceedings between Mr Hogan and other former employees of Waterford Crystal Limited (‘Waterford Crystal’), the plaintiffs in the main proceedings, and the Minister for Social and Family Affairs, Ireland and the Attorney General concerning the transposition of Directive 2008/94.
Legal context
European Union law
3 According to Article 1(1) of Directive 2008/94, that directive is to apply to employees’ claims arising from contracts of employment or employment relationships and existing against employers who are in a state of insolvency within the meaning of Article 2(1) of that directive.
4 Under Article 8 of that directive, Member States are to ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer’s undertaking or business at the date of the onset of the employer’s insolvency in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors’ benefits, under supplementary occupational or inter-occupational pension schemes outside the national statutory social security schemes.
Irish law
The State pension
5 As regards the State pension in Ireland, it is apparent from the order for reference that the Government holds the contributions paid by employees and employers in the form of a socialinsurance fund. Although those contributions are known as ‘Pay Related Social Insurance contributions’, the State pension is paid without reference to the level of the employee’s earnings during his working life.
6 The basic pension is EUR 230.30 per week and is paid to every person who reaches retirement age and who has made a certain level of Pay Related Social Insurance contributions during his working life. The operation of the State pension scheme is independent of a person’s entitlements under an occupational pension scheme, whether a defined benefit scheme or a defined contribution scheme.
Defined-benefit supplementary occupational pension schemes in Ireland
7 In Ireland, in most defined-benefit supplementary occupational pension schemes, the assets of the schemes are held by trustees, fund administrators, for the exclusive benefit of the members of the scheme concerned and thus do not belong to the employer and are not available to satisfy the claims of the employer’s creditors in the event of the insolvency of the employer.
8 In such a scheme, the employees are entitled to a pension only on condition that their scheme has sufficient assets. Those assets are protected by the use of a trust, which segregates them from the assets of the employer.
9 Under the national rules, the supplementary pension schemes are funded by contributions from both employer and employees. In the case of the employees, a fixed percentage of their salary is paid to the pension fund, while the employers make an annual contribution in order to ensure that in the long term the supplementary pension scheme has sufficient assets to meet its liabilities.
10 In order to determine the amount of the employer’s contribution, the Pensions Act 1990, as amended, requires an actuary to calculate the employer’s contribution in accordance with a specified standard known as the ‘Minimum Funding Standard’. It follows that the supplementary pension schemes are ‘balance of cost’ schemes, where the employer contributes annually the amount needed in addition to the employees’ contributions to balance the assets and liabilities in the long term.
11 The rules of the pension fund allow the employer to wind up the supplementary pension schemes at any time and thus to terminate its obligation to contribute to the schemes. Those rules provide that, in the event of the fund’s being wound up, whether because of the employer’s decision to terminate its liability, because of the insolvency of the employer or for any other reason, the employees are to receive a share of the assets of the fund.
12 In Ireland a defined benefit supplementary scheme may take account of the State pension. Such a scheme is called an ‘integrated pension’.
The transposition of Article 8 of Directive 2008/94 into Irish law
13 The national court states that the only measure of national law adopted for the express purpose of transposing Article 8 of Council Directive 80/987/EEC of 20 October 1980 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer (OJ 1980 L 283, p. 23), now Article 8 of Directive 2008/94, is section 7 of the Protection of Employees (Employers’ Insolvency) Act 1984, which provides that any contribution deducted by an employer, or due to be paid by that employer, during the 12 months preceding insolvency is to be paid into the supplementary occupational pension scheme.
The facts in the main proceedings and the questions referred for a preliminary ruling
14 The plaintiffs in the main proceedings are 10 former employees of Waterford Crystal, an undertaking which since 1947 had specialised in the manufacture of very high-quality crystal products, situated in the town of Waterford, (Ireland). For eight of the plaintiffs in the main proceedings, the date of retirement was programmed between 2011 and 2013 and, for the other two, it was due to fall in 2019 and 2022.
15 For those plaintiffs, one of the conditions of employment was that they join one of the defined benefit supplementary pension schemes set up by their employer, the Waterford Crystal Limited Contributory Pension Scheme for Factory Employees or the Waterford Crystal Limited Contributory Pension Scheme for Staff, set up in 1975 and 1960 respectively by deed of trust.
16 Those schemes provided that beneficiaries taking retirement at the normal age could receive an old-age pension the basis for which is the actual final salary minus the State pension. Once that deduction has been made (‘final pensionable salary’), two thirds of the amount thus obtained represents the old-age pension under the supplementary pension schemes in question.
17 At the beginning of 2009, a receiver was appointed for Waterford Crystal and it was found to be insolvent. The supplementary pension schemes set up by that company were wound up on 31 March 2009, when total assets came to EUR 130 million, total liabilities were EUR 240 million and the deficit was therefore around EUR 110 million.
18 The actuary retained by the plaintiffs in the main proceedings considered that they would receive between 18 and 28% of the amounts to which they would have been entitled if they had received the present value of their accrued old-age pension rights. The actuary retained by Ireland was critical of that calculation and considered that that percentage was between 16 and 41% and did not approach the 49% referred to by the Court in Case C-278/05 Robins and Others [2007] ECR I-1053.
19 The plaintiffs in the main proceedings therefore brought an action, claiming that Ireland had not properly transposed Article 8 of Directive 2008/94, regard being had to Robins and Others.
20 By contrast, Ireland maintains that it adopted, both before and after the judgment in Robins and Others, numerous important measures designed to protect the interests of beneficiaries of supplementary occupational pension schemes.
21 The High Court, taking the view that interpretation of the provisions of Directive 2008/94 is necessary in order for it to give its decision, decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
‘1. Whether Directive 2008/94 … applies to the plaintiffs’ situation having regard to Article 1(1) of the Directive and to the fact that the loss of the pension benefits claimed by the plaintiffs are not, in Irish law, a debt against their employer which would be recognised in the receivership or any winding-up of the plaintiffs’ employer, and which does not otherwise provide a legal basis for a claim against their employer in the circumstances of this case.
2. Whether, in assessing whether or not the State has complied with its obligations under Article 8 [of Directive 2008/94], the national Court is entitled to take into account the State contributory pension which will be received by the plaintiffs (receipt of which is not affected by a link with the occupational pension scheme) and to compare (a) the total of the State pension and the value of the pension the plaintiffs will or are likely to actually receive from the relevant occupational pension scheme with (b) the total of the State contributory pension and the value of the accrued pension benefits of each of the Plaintiffs at the date of winding up of the scheme where the State pension was taken into account in designing the level of pension benefit claimed by the plaintiffs?
3. If the answer to Question 2 is yes, whether any of the amounts likely to be actually received by the plaintiffs amount to compliance by the State with its obligations under Article 8?
4. Whether, in order for Article 8 of … [D]irective [2008/94] to apply, it is necessary to establish any causal link between the plaintiffs’ loss of their pension benefits and the insolvency of their employer apart from the facts that (i) the pension scheme is under-funded as of the date of the employer’s insolvency and (ii) the employer’s insolvency means that the employer does not have the resources to contribute sufficient money to the pension scheme to enable the members’ pension benefits to be satisfied in full (the employer being under no obligation to do so once the scheme is wound up).
5. Whether the measures adopted by Ireland … fulfil the obligations imposed by … [D]irective [2008/94] having regard to the social, commercial and economic factors considered by Ireland in the review of pension protection following the decision in Robins and Others … and, in particular, having regard to the “need for balanced economic and social development in the Community” referred to in recital 3 [in the preamble to that] directive?
6. Whether the economic situation … constitutes a sufficiently exceptional situation to justify a lower level of protection of the plaintiffs’ interests than might otherwise have been required and if so, what is that lower level of protection?
7. Assuming the answer to Question 2 is no, whether the fact that the measures taken by the State subsequent to the Robins and Others case have not brought about the result that the plaintiffs would receive in excess of 49% of the value of their accrued pension benefits under their occupational pension scheme is in itself a serious breach of the State’s obligations such as to entitle the plaintiffs to damages ([that is to say] without separately showing that the State’s actions subsequent to the Robins and Others judgment amounted to a grave and manifest disregard of the State’s obligations under Article 8 of … [D]irective [2008/94]).’
Consideration of the questions referred
The first question
22 By its first question the national court asks, in essence, whether Directive 2008/94 is to be interpreted as meaning that it applies to the entitlement of former employees to old-age benefits under a supplementary pension scheme set up by their employer.
23 In that question the national court refers to Article 1(1) of that directive and states that, in Irish law, in such a situation, there is no legal basis for a claim to be made by the plaintiffs in the main proceedings against their employer.
24 In that regard, it must be pointed out that, having regard to the fact that the plaintiffs were required, when they started work, to join the occupational pension scheme set up by their employer, their entitlement to old-age benefits under that scheme must be regarded as arising from the contracts of employment or employment relationships linking them to their employer, within the meaning of Article 1(1) of Directive 2008/94.
25 Article 8 of Directive 2008/94 imposes a specific obligation on the Member States in favour of employees. The Member States may fulfil that obligation by various means. That may be done by ensuring either that the employer is able to meet the obligations arising out of a supplementary occupational pension scheme or that the institution for occupational retirement provision, which is separate from the employer, is able to do so.
26 It is common ground that the plaintiffs in the main proceedings are former employees of a company who claim that their interests, as regards rights conferring on them immediate entitlement to old-age benefits under a supplementary occupational pension scheme, were not protected by Ireland in the event of the insolvency of their employer.
27 Consequently, the answer to the first question is that Directive 2008/94 must be interpreted as meaning that it applies to the entitlement of former employees to old-age benefits under a supplementary pension scheme set up by their employer.
The second question
28 By its second question, the national court asks, in essence, whether Article 8 of Directive 2008/94 is to be interpreted as meaning that State pension benefits may be taken into account in assessing whether a Member State has complied with the obligation laid down in that article.
29 It must be pointed out that the objective of Article 8 of Directive 2008/94 is to ensure, in the event of the insolvency of their employer, that the interests of employees in respect of their entitlement to old-age benefits under supplementary occupational pension schemes are protected. That provision itself states that it relates exclusively to supplementary occupational or inter-occupational pension schemes by specifying, in respect of that protection, that it concerns schemes ‘outside the national social security schemes’.
30 Given the clear wording of Article 8 of Directive 2008/94, State pension benefits may not be taken into account in assessing whether a Member State has fulfilled the obligation laid down in that article.
31 That finding cannot be invalidated by the existence of rules pertaining to a supplementary occupational pension scheme under which, when the old-age pension under that scheme is calculated, State pension benefits are deducted from the amount of the actual final salary which serves as a basis for that calculation.
32 The taking into account of State pension benefits, for the purposes of applying Article 8 of Directive 2008/94, would be contrary to the practical effect of the protection required by that article in respect of supplementary occupational pension schemes.
33 Consequently, the answer to the second question is that Article 8 of Directive 2008/94 must be interpreted as meaning that State pension benefits may not be taken into account in assessing whether a Member State has complied with the obligation laid down in that article.
34 Given the answer to the second question, there is no need to examine the third question.
The fourth question
35 By its fourth question, the national court asks, in essence, whether Article 8 of Directive 2008/94 is to be interpreted as meaning that, in order for that article to apply, it is sufficient that the pension scheme is underfunded as of the date of the employer’s insolvency and that, on account of his insolvency, the employer does not have the resources to contribute sufficient money to the pension scheme to enable the pension benefits owned to the beneficiaries of that scheme to be satisfied in full, or whether it is necessary for those beneficiaries to prove that there are other factors giving rise to the loss of their entitlement to old-age benefits.
36 It must be pointed out that the purpose of Directive 2008/94 is the protection of employees in the event of the insolvency of their employer. It does not deal in any way with the causes of that insolvency.
37 There may be various causes for the underfunding of a supplementary occupational pension scheme, such as non-payment of contributions by employees or by the employer, unfavourable developments in the capital markets, poor management of the scheme’s funds or insufficiently stringent prudential rules.
38 Nevertheless, Article 8 of Directive 2008/94 does not distinguish between those possible causes, but lays down a general obligation to protect the interests of employees and leaves it to Member States to define, in accordance with European Union law, in particular Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision (OJ 2003 L 235, p. 10), the methods by which they fulfil that obligation.
39 Therefore, in order for Article 8 of Directive 2008/94 to apply, it is not necessary to identify the causes of the employer’s insolvency or of the underfunding of the supplementary occupational pension scheme.
40 Consequently, the answer to the fourth question is that Article 8 of Directive 2008/94 must be interpreted as meaning that, in order for that article to apply, it is sufficient that the pension scheme is underfunded as of the date of the employer’s insolvency and that, on account of his insolvency, the employer does not have the resources to contribute sufficient money to the pension scheme to enable the pension benefits owned to the beneficiaries of that scheme to be satisfied in full. It is not necessary for those beneficiaries to prove that there are other factors giving rise to the loss of their entitlement to old-age benefits.
The fifth and sixth questions
41 By its fifth and sixth questions, which it is appropriate to examine together, the national court asks, in essence, whether Directive 2008/94 is to be interpreted as meaning that the measures adopted by Ireland following the judgment in Robins and Others fulfil the obligations imposed by that directive, having regard to the need for balanced economic and social development, and whether the economic situation constitutes an exceptional situation capable of justifying a lower level of protection of the interests of employees as regards their entitlement to old-age benefits under a supplementary occupational pension scheme.
42 In Robins and Others, the Court, in interpreting Article 8 of Council Directive 80/987, now Article 8 of Directive 2008/94, acknowledged that the Member States have considerable latitude in determining both the means and the level of protection of rights to old-age benefits under supplementary occupational pension schemes in the event of the insolvency of the employer, which precludes an obligation to guarantee in full (Robins and Others, paragraphs 36 and 42 to 45).
43 The Court held however that provisions of domestic law that may lead to a guarantee of benefits under a supplementary occupational pension scheme limited to less than half of the benefits to which an employee was entitled does not fall within the definition of the word ‘protect’ used in Article 8 of Directive 80/987 (Robins and Others, paragraph 57).
44 That assessment takes account of the need for balanced economic and social development, by taking into consideration, on the one hand, divergent and rather unpredictable developments in the economic situations of the Member States and, on the other, the necessity of ensuring that employees have a minimum guarantee of protection if their employer becomes insolvent owing, for example, to unfavourable developments in economic conditions.
45 Against that background, it is not the specific nature of the measures adopted by a Member State that determines whether that Member State has correctly fulfilled the obligations laid down in Article 8 of Directive 2008/94, but rather the outcome of those national measures.
46 Furthermore, the measure mentioned by the national court, which is referred to in paragraph 13 of the present judgment, does not seem, having regard to the information referred to in paragraph 18 of the present judgment, to be capable of guaranteeing the minimum level of protection required by Robins and Others.
47 Consequently, the answer to the fifth and sixth questions is that Directive 2008/94 must be interpreted as meaning that the measures adopted by Ireland following the judgment in Robins and Others do not fulfil the obligations imposed by that directive and that the economic situation of the Member State concerned does not constitute an exceptional situation capable of justifying a lower level of protection of the interests of employees as regards their entitlement to old-age benefits under a supplementary occupational pension scheme.
The seventh question
48 By its seventh question, the national court asks, in essence, whether Directive 2008/94 is to be interpreted as meaning that the fact that the measures taken by Ireland subsequent to Robins and Others have not brought about the result that the plaintiffs would receive in excess of 49% of the value of their accrued old-age pension benefits under their occupational pension scheme is in itself a serious breach of that Member State’s obligations.
49 Individuals harmed have a right to reparation against a Member State where three conditions are met: the rule of European Union law infringed must be intended to confer rights on them; the breach of that rule must be sufficiently serious; and there must be a direct causal link between the breach and the loss or damage sustained by the individuals (Case C-445/06 Danske Slagterier [2009] ECR I-2119, paragraph 20, and Case C-568/08 Combinatie Spijker Infrabouw-De Jonge Konstruktie and Others [2010] ECR I-12655, paragraph 87 and the case-law cited).
50 The seventh question relates to the second of those conditions.
51 As soon as the judgment in Robins and Others was delivered, namely on 25 January 2007, the Member States were informed that correct transposition of Article 8 of Directive 2008/94 requires an employee to receive, in the event of the insolvency of his employer, at least half of the old-age benefits arising out of the accrued pension rights for which he has paid contributions under a supplementary occupational pension scheme.
52 In those circumstances, it must be held that, although the nature and extent of the obligation incumbent on the Member States under Article 8 of Directive 2008/94, which is intended to confer rights on individuals, were clear and specific, at the latest as of 25 January 2007, Ireland had not correctly fulfilled that obligation, which constitutes a sufficiently serious breach of that rule of law in the context of any examination which might be carried out in respect of that Member State’s liability for damage caused to individuals.
53 Consequently, the answer to the seventh question is that Directive 2008/94 must be interpreted as meaning that the fact that the measures taken by Ireland subsequent to Robins and Others have not brought about the result that the plaintiffs would receive in excess of 49% of the value of their accrued old-age pension benefits under their occupational pension scheme is in itself a serious breach of that Member State’s obligations.
Costs
54 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Third Chamber) hereby rules:
1. Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection of employees in the event of the insolvency of their employer must be interpreted as meaning that it applies to the entitlement of former employees to old-age benefits under a supplementary pension scheme set up by their employer.
2. Article 8 of Directive 2008/94 must be interpreted as meaning that State pension benefits may not be taken into account in assessing whether a Member State has complied with the obligation laid down in that article.
3. Article 8 of Directive 2008/94 must be interpreted as meaning that, in order for that article to apply, it is sufficient that the pension scheme is underfunded as of the date of the employer’s insolvency and that, on account of his insolvency, the employer does not have the resources to contribute sufficient money to the pension scheme to enable the pension benefits owned to the beneficiaries of that scheme to be satisfied in full. It is not necessary for those beneficiaries to prove that there are other factors giving rise to the loss of their entitlement to old-age benefits.
4. Directive 2008/94 must be interpreted as meaning that the measures adopted by Ireland following the judgment of the Court of Justice of the European Union of 25 January 2007 in Case C-278/05 Robins and Others do not fulfil the obligations imposed by that directive and that the economic situation of the Member State concerned does not constitute an exceptional situation capable of justifying a lower level of protection of the interests of employees as regards their entitlement to old-age benefits under a supplementary occupational pension scheme.
5. Directive 2008/94 must be interpreted as meaning that the fact that the measures taken by Ireland subsequent to Robins and Others have not brought about the result that the plaintiffs would receive in excess of 49% of the value of their accrued old-age pension benefits under their occupational pension scheme is in itself a serious breach of that Member State’s obligations.
Glegola -v- The Minister for Social Protection & Ors
[2017] IECA 37 (
Finlay Geoghegan J., Peart J., Hogan J.
Judgment by:
Finlay Geoghegan J.JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 24th day of February 2017
1. This appeal concerns the entitlement of the appellant to be paid from the Social Insurance Fund a debt due to her by her former employer, The Metro Spa Ltd. in the sum of €16,818.75, pursuant both to a recommendation of the Rights Commissioner dated 11th October, 2012, and to the State’s obligations pursuant to Directive 2008/94/EC on the protection of employees in the event of the insolvency of their employer (“the Directive”).
Background Facts
2. The appellant was employed by The Metro Spa Ltd. (“the Company”). She claims she was dismissed on 30th November 2011, having been informed that the Company was going into liquidation. The reason given for her dismissal was redundancy.
3. She subsequently formed the view that the Company had continued to trade, and she made a complaint to the Rights Commissioner in May 2012 under the Payment of Wages Act 1991, the Organisation of Working Time Act 1997 and the Unfair Dismissals Acts 1977 to 2001. Furthermore, her solicitor wrote to the Company alleging that the Company’s designation in the Companies Registration Office was “normal” rather than “in liquidation”, and that the “undertaking” continued to trade. Reasons for the appellant’s dismissal were sought. On 7th June, 2012, the solicitor for the Company responded and stated:
“Our client ceased trading in November 2011. This can be verified from an inspection of the premises at Clarendon Street from which it used to trade. The only reason the company has not entered into liquidation is because of the costs which would be attendant on same and the lack of any resource within the company to meet the same. In the circumstances, it is clear that a true redundancy situation did exist and is verifiable.”
4. The Rights Commissioner held a hearing in August 2012, which was not attended by the Company, and issued a recommendation on 11th October, 2012. The recommendation stated:
“As there was an unexplained absence of the Respondent, I accept the uncontested evidence presented on behalf of the Claimant. I find her claims well-founded and make the following awards:-
Unfair Dismissals Act – €10,000 in compensation
Organisation of Working Time Act – €5,000 in compensation
Payment of Wages Act – €1,818.75 in unpaid wages.”
5. The recommendation records a summary of the claimant’s position as:
“The Claimant does not accept that a redundancy situation exists and further asserts that the procedures applied to her, culminating in her dismissal were unfair. The Respondent’s company has not been placed in liquidation and continues to trade. There were plenty of opportunities for the Claimant to be re-engaged and retrain where appropriate.”
6. The total amount awarded was €16,818.75. It is accepted for the purposes of this appeal that the recommendation of the Rights Commissioner, not having been appealed by the Company, became binding and was subsequently a debt due by the Company to the appellant.
7. On 16th October, 2013, the Company was struck off the Register of Companies for failing to file accounts.
8. On 13th March 2014, the appellant issued a petition in which she sought an order restoring the Company to the Register pursuant to s. 12B of the Companies (Amendment) Act 1982; an order winding up the Company pursuant to the provisions of the Companies Acts and Article 3 of EU Regulation 1346/2000; an order pursuant to s. 251 of the Companies Act 1990 and liberty to bring applications under s. 297A of the Companies Act 1963 and s. 140 of the Companies Act 1990 by way of notice of motion. The petition was served, inter alia, on the Company but was not advertised in the ordinary way. The petition and grounding affidavit explains the purpose of the petition as being that the appellant was seeking to have her award from the Rights Commissioner paid from the Social Insurance Fund established pursuant to the Protection of Employees (Employers’ Insolvency) Act 1984. Further, it was submitted that the petitioner was unable to afford the costs of a liquidator and therefore was seeking a determination under s. 251 of the Companies Act 1990 by reason of advice she had received that this would be sufficient to comply with the requirements of Article 2.1 of the Directive which, it was contended, had direct effect.
9. A motion was brought in the petition proceedings in the High Court [2014 149 COS] and ultimately heard by Charleton J. on 28th April, 2014. The Court dispensed with any advertisement; deemed the hearing of the motion to be hearing of the petition; made an order restoring the Company to the Register of Companies and other consequential orders and made the following declaration:
“. . . pursuant to s. 251 of the Companies Act 1990, that the company is unable to pay its debts and that the reason for it not being wound up is due to the insufficiency of its assets.”
10. Armed with this order, on the 10th June, 2014, the solicitor for the appellant wrote to the Secretary General of the Department of Social Protection seeking payment of the amount of the award recommended by the Rights Commissioner from the Social Insurance Fund. It was contended that the declaration pursuant to s. 251 of the Companies Act 1990 was sufficient to trigger Article 2(1)(b) of Directive 2008/94/EC, which it was submitted has direct effect in the State. It was intimated that in default of payment within 21 days, judicial review proceedings would issue, and it was further stated that the appellant was reserving her right to seek damages from the State for its failure to transpose European law in accordance with the decision of the European Court of Justice in Francovich v. Italy.
11. By order of the High Court (Barton J.) of 7th July, 2014, leave was granted for the judicial review proceedings. The statement of grounds was verified by an affidavit of the solicitor for the appellant, and subsequently a notice of opposition verified by affidavit was delivered.
12. Following a full hearing, the application for mandamus was dismissed for the reasons set out in the written judgment of Hedigan J., delivered on the 23rd June, 2015. In essence, the trial judge concluded that on the facts, and on the procedures up to that moment in time undertaken by or on behalf of the appellant, she had not satisfied the requirements of Article 2(1)(b) of the Directive and hence could not sustain a claim against the State in reliance upon the direct effect of Article 2(1)(b) of the Directive. The trial judge did not consider the alternative claim for damages pursuant to the Francovich principles.
13. On appeal, counsel for the appellant pursued two distinct submissions in the alternative.
14. First, he submitted that the declaration granted by the High Court (Charleton J.) on 28th April, 2014 in the petition proceedings pursuant to s. 251 of the Companies Act 1990, satisfied the requirements of Article 2(1)(b) of Directive 2008/94/EC, and accordingly, the State is obliged to make the payment to the appellant out of the Social Insurance Fund in accordance with the principles of direct effect.
15. The second submission, which only arises if the Court does not accept the first, is that the State has failed to transpose Article 2(1)(b) of Directive 2008/94/EC in failing to have in place a procedure where, as part of the statutory scheme applicable to a petition to wind up a company by the Court, an application could be made, in the alternative for an order of a type envisaged by Article 2(1)(b). Further, it was contended that in accordance with the Francovich principles, the appellant is entitled to an award of damages against the State in the amount of the Rights Commissioner’s recommendation.
16. Counsel for the Minister disputes the adequacy of the declaration pursuant to s. 251 of the Companies Act 1990 to satisfy the requirements of Article 2(1)(b) of Directive 2008/94/EC. She also submits that Ireland is not in breach of its obligations in relation to the transposition of the Directive by the enactment of the Protection of Employees (Employers’ Insolvency) Act 1984. Her final submission is that even if there has been a breach by the State, that the appellant has not satisfied all of the criteria for an award of damages in accordance with the Francovich principles.
17. Prior to considering the opposing submissions, it is necessary to set out the EU and Irish legislative schemes. Directive 2008/94/EC, passed on 22nd October, 2008, repealed and replaced Council Directive 80/987/EEC which had been substantially amended several times. It was now sought in the interests of clarity and rationality that the protection of employees in the event of the insolvency of their employers be codified. Nothing turns on this, save it explains the earlier date of the implementing legislation in the State.
18. Article 1 states that the Directive applies to certain employees’ claims arising against employers “who are in a state of insolvency within the meaning of Article 2(1)”.
19. Article 2(1) provides:
“1. For the purposes of this Directive, an employer shall be deemed to be in a state of insolvency where a request has been made for the opening of collective proceedings based on insolvency of the employer, as provided for under the laws, regulations and administrative provisions of a Member State, and involving the partial or total divestment of the employer’s assets and the appointment of a liquidator or a person performing a similar task, and the authority which is
competent pursuant to the said provisions has:
(a) either decided to open the proceedings; or
(b) established that the employer’s undertaking or business has been definitively closed down and that the available assets are insufficient to warrant the opening of the proceedings.”
20. Article 2(2) specifies that the Directive is without prejudice to national law as regards certain definitions, none of which include the term “state of insolvency”. Article 2(4) permits Member States to extend employee protection to other situations of insolvency, but without certain transnational obligations provided for in the Directive. The Directive, in Chapter 2, requires Member States to ensure that guarantee institutions guarantee certain employees’ outstanding claims. No issues arise in these proceedings in relation to Ireland’s compliance with those provisions of the Directive.
21. The Directive (or its predecessor) was sought to be implemented by the Protection of Employees (Employers’ Insolvency) Act 1984. The issue relates to s. 1(3) of the 1984 Act which, insofar as is relevant to a company, provides:
“(3) For the purposes of this Act, an employer shall be taken to be or, as may be appropriate, to have become insolvent if, but only if,
(a) . . .
(b) …
or
(c) where the employer is a company, a winding up 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 any floating charge, of any property of the company comprised in or subject to the charge; or. . .”
22. On the facts herein, no receiver or manager was appointed; no possession was taken by a debenture holder, and no resolution was passed for voluntary winding up.
23. The entitlement of a person to recover from the Social Insurance Fund pursuant to s. 6 of the 1984 Act is confined to a situation where the employment was “by an employer who has become insolvent”.
24. The problem for the appellant, having regard to the provisions of the 1984 Act, was that as her former employer was a company in accordance with s. 1(3) for the purposes of the Act, it is considered to have become insolvent “if, but only if, [emphasis added]” a winding up order has been made, or one of the other situations in subparagraph (c) applies, none of which applied on the facts of this situation between the appellant and the Company.
25. The appellant was a creditor of the Company with an unpaid debt. As such, she was a person entitled to petition for the winding up of the Company pursuant to sections 213 and 214 of the Companies Act 1963. However, as far as she was aware, the Company did not have any assets and she averred that she was not in a position to indemnify a person to act as liquidator of the Company.
26. An analogous situation arose in Re Davis Joinery Ltd. [2013] 3 I.R. 792. That case concerned a petition to wind up a company where the petitioner was a person who wished to make a claim against the Social Insurance Fund in respect of a debt of €53,080. When the matter first came before Laffoy J. in the High Court, there was no person (who had consented to do so) put forward to act as official liquidator for the purposes of the winding up.
27. Laffoy J. ultimately delivered a written judgment which sets out, with usual clarity, the problem presented by the manner of implementation of the Directive by s. 1(3) of the 1984 Act, and the provisions of the Companies Act 1963. While s. 1(3) of the 1984 Act only requires the making of a winding-up order, Laffoy J., for reasons fully set out at paras. 30 to 32 of her judgment, reached the conclusion that it would not be appropriate to make a winding-up order without ensuring that the office of official liquidator is filled from the time of the making of the winding-up order. It appears, on the facts recorded in the judgment, that it was proposed that she make a winding-up order with a person who had only consented to act as a provisional liquidator. However, she was unwilling to do that and adjourned the petition to enable the parties ascertain if the insolvency practitioner was prepared to consent to act as official liquidator. He subsequently consented and the winding-up order and appointment of liquidator was made in the usual form for the purposes of the winding up under the supervision of the Court.
28. In those proceedings, Laffoy J. identified clearly the problem for employees with a debt owed by a former employer, a company, which would otherwise qualify for payment out of the Social Insurance Fund, but where the company is not formally wound up, either on a voluntary or compulsory basis by order of the Court. Laffoy J. also made a number of general observations in relation to the problems arising from the transposition of the Directive, to which I will return.
29. The appellant herein was not as fortunate as the petitioner in Re Davis Joinery Ltd. She did not have a person willing to act as official liquidator. In Re Davis Joinery Ltd., Laffoy J. records that she pointed out that “the role of an official liquidator performed under the supervision of the High Court is an onerous role and may involve the official liquidator incurring expenditure which he may not be in a position to recoup”.
30. Faced with this problem, counsel for the appellant attempted to find an alternative provision in the Companies Acts which might enable the definition of “state of insolvency” in Article 2(1)(b) of the Directive be satisfied. He identified s. 251 of the Companies Act 1990. Insofar as is relevant, it provides:
“(1) This section applies in relation to a company that is not being wound up where—
(a) execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(b) it is proved to the satisfaction of the court that the company is unable to pay its debts, taking into account the contingent and prospective liabilities of the company, and
it appears to the court that the reason or the principal reason for its not being wound up is the insufficiency of its assets.
(2) The following sections, with the necessary modifications, shall apply to a company to which this section applies, notwithstanding that it is not being wound up—
(a) sections 139 , 140 , 203 , and 204 of this Act, and
(b) the provisions of the Principal Act mentioned in the Table to this section.”.
31. As is clear from the language of that section, in order that s. 251 can apply in relation to a company, it must be both proved to the satisfaction of the Court that “the company is unable to pay its debts . . .” and it must appear to the Court that the reason or principal reason for its not being wound up is the insufficiency of its assets. The petition and verifying affidavit in the proceedings before Charleton J. addressed those issues, and he made the declaration already set out that “the company is unable to pay its debts and that the reason for it not being wound up is due to the insufficiency of its assets”.
State of Insolvency
32. The first issue is whether the declaration made by Charleton J. in the petition proceedings in the High Court satisfies the requirements of Article 2(1)(b) of the Directive such that the Company was, consequent on that declaration, “deemed to be in a state of insolvency” within the meaning of Article 2(1)(b) of the Directive. Counsel for the appellant submits that it was, and that, accordingly, the appellant was entitled to payment out of the Social Insurance Fund when the demand was made.
33. I cannot agree with that submission. The presentation of a petition to wind up a company pursuant to the Companies Acts is, in the wording used in Article 2, a request for the opening of collective proceedings based on the insolvency of the employer. It would, for the reasons set out by Laffoy J. in Re Davis Joinery Ltd., always be accompanied by an application for the appointment of a liquidator. The relevant request, in accordance with the opening paragraph of Article 2(1), must be both for the opening of the collective proceedings and the appointment of a liquidator or a person performing a similar task. Leaving to one side the question as to whether the petition presented by the appellant for the winding up of the Company without an application for the appointment of a liquidator even meets that part of Article 2(1), in order that there be a deemed state of insolvency, the person to whom the request was made i.e. in the Irish context, the High Court, must have done one of two things. The first is decide to open the proceedings, and that would normally mean either the appointment of a provisional liquidator or the making of a winding-up order and appointment of an official liquidator, neither of which occurred here. Otherwise, the Court must have made a decision of the alternative type envisaged in Article 2(1)(b). That requires that the Court has established, and is satisfied, that the company’s undertaking or business “has been definitely closed down and that the available assets are insufficient to warrant the making of a winding-up order or the appointment of a provisional liquidator as an initial step to making a winding-up order”.
34. I accept the submission made on behalf of the Minister that the purpose of the requirement of satisfying a Court, or other competent authority taking the decision, that the relevant company’s undertaking or business “has been definitively closed down” is a requirement of certainty, which is designed to protect the insolvency funds. As is stated in Article 2, an employer is being deemed to be in a state of insolvency for the purposes of the Directive without the opening of formal insolvency proceedings. The declaration made in the High Court by Charleton J. does not address this issue. Counsel for the appellant fairly told us that Charleton J. was informed of the reason for which he was being asked to make the declaration, as was termed pursuant to s. 251 of the Companies Act 1990, but that he nonetheless did not consider he was in a position to make a declaration, pursuant to that section, to the effect that the business of the Company had been definitively closed down.
35. By reason of that conclusion, it is unnecessary to consider whether s. 251 of the Companies Act 1990 in fact gives the High Court a jurisdiction to make a declaration of that type. However, lest the issue should arise again, it appears appropriate to indicate that it does not appear to me to give such a jurisdiction. The section, in its terms, states that it will apply if the Court is satisfied of certain matters. If s. 251(1) does apply, then the consequences are that the other sections in the Companies Act,, as set out in s. 251(2), apply to the company in question , notwithstanding that it is not being wound up. Those are sections which normally apply to companies which are being wound up. The only decision to be made on an application pursuant to s.251(1) is whether it applies to the company or not. It does not confer jurisdiction to make other declarations.
Failure to Transpose
36. In these circumstances, it is therefore necessary to consider next whether the State has failed to fully and properly transpose Directive 2008/94/EC. As appears, Article 1 applies the Directive to employers “who are in a state of insolvency within the meaning of Article 2(1)”. Translating this term and employing the more familiar Irish terminology and procedure, Article 2(1) deems an employer, which is a company, to be in a state of insolvency where a petition has been presented for its winding up and the appointment of a liquidator and the Court, in accordance with the Irish laws, regulations and administrative provisions, has done one of two things: either decided to make a winding-up order or appoint a provisional liquidator with a view to the hearing of a petition and the making of a winding-up order, or has made a finding or declaration that the undertaking or business of the company has been definitively closed down and that the available assets are insufficient to warrant making a winding-up order or appointing, as an initial step, a provisional liquidator.
37. The reason for which I have referred to the appointment of a provisional liquidator in the context of the opening of insolvency proceedings is the judgment of the Court of Justice in Case C-341/04 Eurofood IFSC Ltd EU: C: 2006: 281 [2006] ECR I-3813 which indicates that the appointment of a provisional liquidator may constitute the opening of insolvency proceedings within the meaning of the insolvency regulation. However, nothing turns on that for the purposes of this appeal.
38. It is common case that there is no provision under the Companies Acts which enables a petitioner for an order for the winding-up of a company and appointment of a liquidator to apply for and be granted the alternative form of order envisaged in Article 2(1)(b). For the reasons already set out, s. 251 does not enable the Court to make such an order. Consideration was given to s. 216 of the 1963 Act, but counsel for the Minister properly did not submit that the jurisdiction to make “any other order that it thinks fit” in the context of s. 216 could be considered as granting such a jurisdiction.
39. In addition to the absence of any provision in the Companies Acts which would enable a court hearing a winding-up petition to make, instead of an order for the winding-up and appointment of a liquidator, an order of the type set out in Article 2(1)(b) of the Directive, the definition in s. 1(3) of the Protection of Employees (Employers’ Insolvency) Act 1984 creates a difficulty. It provides “an employer which is a company will be taken to have become insolvent, if but only if, a winding up order is made or a resolution for voluntary winding up is passed or a receiver or manager of its undertaking is duly appointed. . .” The requirement that a winding up order is made in order that a company will be taken to have become insolvent has the effect that the 1984 Act does not permit a person to make a claim against the Social Insurance Fund in circumstances of a deemed state of insolvency following an application and decision by a court of a type specified in Article 2(1)(b) of the Directive.
40. For those reasons, I have concluded that the State has failed to correctly transpose Article 2(1) of Directive 2008/94/EC.
Damages
41. The applicable principles are not in dispute. They were set out in the seminal decision of Joined Cases C-6/90 and C-9/90, Francovich and Bonifaci, of 19th November, 1991 at paras. 39 to 41 where the Court of Justice stated:
“39. Where, as in this case, a Member State fails to fulfil its obligation under the third paragraph of Article 189 of the Treaty to take all the measures necessary to achieve the result prescribed by a directive, the full effectiveness of that rule of Community law requires that there should be a right to reparation provided that three conditions are fulfilled.
40. The first of those conditions is that the result prescribed by the directive should entail the grant of rights to individuals. The second condition is that it should be possible to identify the content of those rights on the basis of the provisions of the directive. Finally, the third condition is the existence of a causal link between the breach of the State’s obligation and the loss and damage suffered by the injured parties.
41. Those conditions are sufficient to give rise to a right on the part of individuals to obtain reparation, a right founded directly on Community law.”
42. Further, it is not in dispute that the Francovich judgment itself decided that Directive 80/987/EEC entailed the grant of rights to individuals. Similar provisions in Directive 2008/98/EC do likewise.
43. The Court of Justice has further expanded on the second condition identified, namely, that the breach of Community law is sufficiently serious to warrant an award of damages against the Member State. In Cases C-46/93 and C-48/93, Brasserie du Pecheur and Factotame, [1996] ECR I-1029 at paras. 55 and 56, it stated:
“55. As to the second condition, as regards both Community liability under Article 215 and Member State liability for breaches of Community law, the decisive test for finding that a breach of Community law is sufficiently serious is whether the Member State or the Community institution concerned manifestly and gravely disregarded the limits on its discretion.
56. The factors which the competent court may take into consideration include the clarity and precision of the rule breached, the measure of discretion left by that rule to the national or Community authorities, whether the infringement and the damage caused was intentional or involuntary, whether any error of law was excusable or inexcusable, the fact that the position taken by a Community institution may have contributed towards the omission, and the adoption or retention of national measures or practices contrary to Community law.”
44. Those criteria have been the subject of consideration by this Court in Ogieriakhi v. Minister for Justice [2016] IECA 46. Counsel for the appellant relied upon the further factors to be taken into account which had been identified by the Court of Justice in its judgment in Case C-278/05 Robins & Ors. [2007] ECR I-1081, where at paras. 70 to 72, it stated:
“70. The condition requiring a sufficiently serious breach of Community law implies manifest and grave disregard by the Member State for the limits set on its discretion, the factors to be taken into consideration in this connection being, inter alia, the degree of clarity and precision of the rule infringed and the measure of discretion left by that rule to the national authorities (Brasserie du Pêcheur and Factortame, paragraphs 55 and 56).
71. If, however, the Member State was not called upon to make any legislative choices and had only considerably reduced, or even no, discretion, the mere infringement of Community law may be sufficient to establish the existence of a sufficiently serious breach (see Hedley Lomas, paragraph 28).
72. The discretion enjoyed by the Member State thus constitutes an important criterion in determining whether there has been a sufficiently serious breach of Community law.”
45. Reliance was also placed upon the judgment of Laffoy J. in Re Davis Joinery Ltd., already referred to, and in particular the observation made by her at paras. 33 to 35:
“33. While the court has been able to provide assistance to the petitioner, it has been able to do so by applying the provisions of the Act of 1963 in the ordinary way. However, the problem arising from the transposition of the Employers’ Insolvency Directive has been around for a long time and, as stated in Regan, Employment Law (Bloomsbury, 2009) at para. 12.23:-
‘The Act’s failure to deal with informal insolvency is probably its greatest defect and certainly its most controversial one’.
That problem is not cured by this decision.
34. The petitioner in this case has been fortunate in that his solicitors and counsel have taken the matter this far on his behalf and have been of very considerable assistance to the court and must be commended for that. However, one has to be concerned for less fortunate employees of corporate employers who have become caught up in what has become known as ‘informal insolvency’ and who are not in a position to petition to have the employer corporation wound up. Unless the issue is successfully litigated by an adversely affected employee in the future in this jurisdiction, or on a reference to the ECJ, the obvious unfairness inherent in the Act of 1984, as amended, will only be redressed by legislative change. Whether such change should be implemented is a matter of policy for the Government and the Oireachtas.
35. Finally, for the avoidance of doubt, it must be emphasised that nothing in this judgment should be interpreted as expressing any view as to whether the Petitioner can maintain an action against the State for loss incurred as a result of the manner of transposition of the Employers’ Insolvency Directive.”
46. Applying those principles to the facts herein, I have concluded that the breach by the State in failing to transpose fully Directive 2008/94/EC by failing to provide a procedure whereby a person, such as the present appellant, who is owed a debt by her employer, a company which is insolvent, but where no steps have been taken by the directors to wind up voluntarily and there are no assets available in the company to satisfy the probable costs to be incurred by a liquidator, to obtain the alternative type of order identified in Article 2(1)(b), is sufficiently serious in accordance with the principles set out above, to warrant an award of damages.
47. First, Article 2(1) of the Directive sets out with clarity the conditions under which an employer will be deemed to be in a state of insolvency for the purposes of the Directive. Those are minimum terms of a state of solvency, as Article 2(4) expressly permits greater protection to be given to employees. Thus, it is clear that an employee must be entitled to recover against an insurance fund where, in accordance with such minimum criteria, a state of insolvency exists in relation the employer.
48. Second, Article 2(1) makes expressly clear the fact that in relation to a company, an order for winding up is not required and that a deemed state of insolvency may exist where a Court, in proceedings in which there is a petition to wind up, makes the alternative type of order set out in Article 2(1)(b). Notwithstanding the clarity of this provision, the State, in passing the 1984 Act, defined insolvency exclusively in relation to a company as requiring either a resolution to wind up voluntarily or the making of an order for the winding up. The additional provisions in relation to appointments of receivers or taking of possession by a debenture holder are not relevant.
49. As Laffoy J. observed in Re Davis Joinery Ltd., the problem with what she refers to as “informal insolvencies” was well recognised and known for some time prior to her judgment in that case in 2013. The Oireachtas has addressed the issue of insolvent companies not being formally wound up for other purposes, such as in s. 251 of the Companies Act 1990. The written reserved judgment of Laffoy J. delivered on 19th July, 2013 sets out with great clarity the problem at issue, and the resolution reached in that case for the petitioner with the assistance of his solicitor, counsel, and an insolvency practitioner who was willing to act as official liquidator. That judgment was delivered approximately eight months prior to the petition presented by the appellant herein to the High Court seeking the winding up order.
50. Hence, whilst I have noted that there were no infringement proceedings commenced against Ireland by the Commission, nevertheless, it appears to me, for the reasons outlined above there was a manifest disregard by the State of the limits of its discretion. The State was not called upon to make a legislative choice in transposing Article 2(1) of the Directive so as to provide in Irish law a procedure which would enable an employer which was a company, which appeared to have definitively ceased trading and where there was an insufficiency of assets, to enable a liquidator be appointed be deemed to be in a state of insolvency so that the employee could benefit, as intended by the Directive, by payment from the Social Insurance Fund.
51. Whilst the amount of the debt due to the appellant herein is relatively small, nevertheless, it is a sufficiently serious breach where it leaves the employee intended to benefit from the provisions of the Directive unable to recover monies due to her by her employer in circumstances in which the Directive provides they should be recoverable from the Social Insurance Fund.
52. The final question is the causal link. Counsel for the State informed the Court, on instructions, that no point was being taken in relation to the amount of the award made by the Rights Commissioner. It is also accepted that such award became binding on the employer. However, there are two issues in dispute on the causal link. They both relate to the question as to whether the Court should now be satisfied that if the procedure envisaged by Article 2(1)(b) had been in place at the relevant time, the appellant would, as a matter of probability, have satisfied the Court that the Company’s undertaking or business had been definitively closed down and that the available assets were insufficient to warrant the making of a winding-up order and also that the appellant would have brought the application within the times specified in the 1984 Act. Submissions were made on behalf of the State with particular reference to the matters averred to in the verifying affidavit in the petition proceedings, and also the fact that the appellant had, before the Rights Commissioner, disputed that the business of the Company had been definitively closed down.
53. It is true that the appellant gave evidence, which was accepted by the Rights Commissioner, that she considered that her employer was then continuing to trade. That hearing was in August 2012. Notwithstanding that the employer did not appear at the hearing, the position maintained by solicitors on its behalf in their letter of 7th June, 2012 was that their client had ceased trading in November 2011, and it was suggested that this could be verified from an inspection of the premises from which it used to trade. The Company was subsequently struck off by the Registrar of Companies on 11th October, 2013. I recognise that the fact that a company is struck off for failure to file returns does not mean that it is not in fact continuing to trade. When the petition was presented in March 2014, it was served on the Company and the Company did not appear in the High Court.
54. On the causal link, it appears to me this Court must be satisfied that the absence of the relevant procedure in the State required by Article 2(1)(b) of the Directive caused the appellant’s loss in failing to recover the amount awarded by the Rights Commissioner from the Social Insurance Fund. I am satisfied on the evidence before the High Court and this Court that if there had been in place in late 2012 or 2013, a procedure under which the appellant could have petitioned the High Court for the winding up of the Company and appointment of a liquidator, but also seek in the alternative an order or declaration that the business of the Company had been definitively closed down and that the available assets were insufficient to warrant a winding up by the Court and appointment of an official liquidator, that the appellant would, as a matter of probability, have been able to discharge the requisite evidential burden.
55. Further, it appears to me that if such a procedure had been available in the Companies Acts or other relevant legislation, that as a matter of probability, the solicitors acting for the appellant who were already advising her in May 2012 would as a matter of probability have made any application within the relevant timeframe.
56. Accordingly, in my judgment, the appellant is entitled to recover damages in the sum of €16,818.75 against the State for its failure to correctly transpose Directive 2008/94/EC.
Conclusion
57. I would allow the appeal; vacate the order of the High Court; grant a declaration that the State has failed to correctly transpose Directive 2008/94/EC by failing to provide in Irish law for the procedure required by Article 2(1)(b) of the Directive and make an award of damages against the State in the sum of €16,818.75.