The purpose of the insolvency payments scheme is to protect certain outstanding pay-related entitlements due to employees in the event of the insolvency of their employer. The scheme operates under the Protection of Employees (Employers’ Insolvency) Act 1984, which derives from EU Directive 2008/94. Payments are made from the Social Insurance Fund.
The Protection of Employees (Employers’ Insolvency) Act 1984 provides for a scheme to employees of companies that are in a formal wind-up procedure such as liquidation or receivership, or situations where the employer has died and the estate is insolvent, or an employer has been declared bankrupt.
The legislation does not provide for situations where an employer ceases to trade without engaging in any formal wind-up process. In such cases, referred to as ‘informal insolvency’, former employees may have monies owed to them without having a legal mechanism to claim same from the Social Insurance Fund.
In December 2018, the Supreme Court found that Ireland must provide a mechanism through which a competent authority can determine that a state of insolvency arises, without requiring a formal wind-up process, and that monies due to the employee can be claimed by them from the Social Insurance Fund.
The judgment and its ramifications are complex. Consideration must be given to:-
- how the definition of insolvency for the purposes of the Protection of Employees (Employers' Insolvency) Act 1984 can be extended to include situations of informal insolvency and what are the implications and consequences for company law. To date the two statutory regimes - employers' insolvency on one hand and company law on the other - have been aligned.
- The determination of insolvency and by whom this determination will be made in the absence of a formal wind-up process. This will be essential in situations of informal insolvency.
- Safeguarding the Social Insurance Fund from potential abuse.
Officials in my Department are working with the Office of the Attorney General and external counsel in addressing the issues involved. Consultation with other relevant Government Departments and Offices is also underway.