It has been suggested that Ireland improperly transposed the Employer’s Insolvency Directive into Irish Law by adopting a definition of “insolvency” which requires an actual winding up order (or a resolution of voluntary winding up to be passed) before an employee can have access to the Insolvency Fund, a Government payment scheme which provides for the payment of certain employee entitlements, in the event of the insolvency of their employer. It has been argued that this definition is not in accordance with the Directive which recognises that a “state of insolvency” can arise without the need for the actual appointment of a liquidator. As a result, employees in Ireland whose employers are in an informal insolvency situation are left in a far less favourable position than Irish employees whose employers have been the subject of formal insolvency procedures.

The issue came before the High Court in a recent case.  Proceedings were brought by a former employee of a company, who was also a creditor, having been awarded compensation on foot of a number of claims against the company which had gone unpaid. He petitioned the High Court to have the company wound up after these debts were not met. The problem was that without a winding up order (which in Irish law requires the appointment of a liquidator) he could not have recourse to the Insolvency Fund.

The employee/petitioner argued that he was entitled to payment from the Insolvency Fund despite there not being a formal winding up order as the company was in a “state of insolvency” in accordance with the Directive definition and this definition was directly effective in Ireland. However, as the issue of whether the Directive was properly transposed into Irish law was not before the Court in this case, the Judge declined to express a view on this point.

The Court, however, was able to remedy the inequality in this case in another way as the employee/petitioner was lucky enough to have a liquidator who consented to act, thus allowing the official liquidation to proceed in the normal way, which in turn gave the employee/petitioner access to the Insolvency Fund.

Whilst this provided a remedy to the employee in this case, it does not cure the problem for others who may not be able to find a liquidator who is willing to act, given that such appointment would involve incurring expenditure that (s)he may not be able to recover.

The Judge expressed concern for employees caught in such an “informal insolvency” situation, who will still face the inherent unfairness in Ireland’s implementation of the EU Directive and stated that “unless the issue is successfully litigated by an adversely affected employee…the obvious unfairness inherent in the Act…will only be addressed by a legislative change.” Until such time, it remains an issue that may affect many more employees in the near future.