A large corporation used a service company to employ staff and second them to an operating company. While there was a contract between the service company and its parent, providing that the parent would procure payment from the operating company to the service company for its employee services, there was no direct contract between the operating company and the service company.
On the administration of the group, the service company sought a declaration that there was an implied contract with the operating company, so that the operating company had to indemnify it for pensions’ liabilities under Section 75 of the Pensions Act 1995.
- The Court could not accept that the employee service payments by the operating company were made in compliance merely following instructions from the parent company; in reality, there was no evidence that the parent company had procured payment
- The only explanation for such significant payments was that, despite an absence of documentation, there was an implied contract between the operating company and the service company. It was unimaginable that annual payments in the region of $330 million should be undocumented and there must have been an intention to create contractual, enforceable obligations.
The Court admitted that it is a significant step to infer a contract between well-advised, substantial commercial companies and, before taking appointment, insolvency practitioners will therefore need to scrutinise intra-group arrangements closely as implied contracts may lead to significant balance sheet issues and impact on predicted distributions.