Application by Hercules Group Services Pty Ltd as trustee for The Hercules Group Services Unit Trust
[2023] FWC 3107
•27 NOVEMBER 2023
| [2023] FWC 3107 |
| FAIR WORK COMMISSION |
| DECISION |
Fair Work Act 2009
s.120—Redundancy pay
Application by Hercules Group Services Pty Ltd as trustee for The Hercules Group Services Unit Trust
(C2023/6429)
| COMMISSIONER CRAWFORD | SYDNEY, 27 NOVEMBER 2023 |
Variation of redundancy pay – incapacity to pay – insufficient evidence - application dismissed
Background
Hercules Group Services Pty Ltd as trustee for The Hercules Group Services Unit Trust (Hercules Group Services) has applied pursuant to s.120 of the Fair Work Act 2009 (FWAct) to have the Commission reduce the redundancy pay entitlement of Neil Virago (Mr Virago).
Mr Virago commenced employment with Hercules Group Services on 14 March 2016.[1] Mr Virago was employed by Hercules Group Services as an Operations Manager. Mr Virago’s employment was terminated by Hercules Group Services on 23 October 2023 on the ground of redundancy.[2] Hercules Group Services is part of the Hercules group of companies which is involved in the provision of equipment to car parks such as car lifts, stackers and turn-tables.[3]
It is not in dispute that Mr Virago is entitled to 13 weeks of redundancy pay pursuant to s.119 of the FW Act. Mr Virago has been paid five weeks in lieu of notice for termination in accordance with s.117 of the FW Act. Mr Virago’s annual salary at the time of termination was $110,000. As a result, the value of Mr Virago’s full redundancy pay entitlement is $27,500 gross.
Hercules Group Services has applied to reduce Mr Virago’s redundancy pay entitlement to “4 weeks, or whatever amount is deemed suitable by FairWork”.[4] Four weeks’ pay would equate to $8,461 gross for Mr Virago.
The basis for Hercules Group Services’ application is:
“Hercules Group Services have (sic) made a $1,019,691 loss for the current quarter with the entire consolidated group of Hercules companies making a $445,563 loss and our biggest expense by far is payroll. We are struggling with cash flow and request that the redundancy pay be reduced to 4 weeks. We only have 21.4 FTE and fall just outside of the small business provisions.”[5]
I listed the application for Mention/Directions on 2 November 2023. Mr Virago indicated he opposed the application. I then issued directions for the filing of material by both parties and listed the application for hearing via video on 22 November 2023.
Phil Elsley (General Manager) appeared for Hercules Group Services at the hearing on 22 November 2023 and Mr Virago represented himself.
Material filed
Hercules Group Services relied on the following evidence in support of its application:
· Mr Virago’s notice of redundancy letter dated 23 October 2023. I marked this Exhibit A1.
· A profit and loss excerpt for the Hercules group of companies Year to Date for the September quarter of the 2023/2024 financial year. I marked this Exhibit A2.
· An excerpt from bank accounts operated by the Hercules group of companies. Mr Elsley indicated the figures were extracted on 10 November 2023. I marked this Exhibit A3.
· A balance sheet excerpt for Hercules Group Services as of 10 November 2023. I marked this Exhibit A4.
· A flow chart showing ownership of the Hercules group of companies. I marked this Exhibit A5.
Mr Virago did not seek to cross-examine Mr Elsley concerning this evidence. Mr Elsley also made oral submissions.
Mr Virago relied on the following evidence in opposing the application:
· A spreadsheet showing active projects for Hercules Carparking Systems 2004 Pty Ltd. I marked this Exhibit R1.
· A spreadsheet showing active projects for Hercules Carparking Systems WA Pty Ltd. I marked this Exhibit R2.
· A series of emails between the St George Bank, Mr Elsley and other representatives of the bank and Hercules group of companies from 26 October 2023 to 2 November 2023. The emails concern a credit application by the Hercules group of companies. I marked the emails Exhibit R3.
Mr Elsley did not seek to cross-examine Mr Virago concerning this evidence. Mr Virago also made oral submissions.
Relevant Legislation
Section 120 of the FW Act states:
120 Variation of redundancy pay for other employment or incapacity to pay
(1)This section applies if:
(a) an employee is entitled to be paid an amount of redundancy pay by the employer because of section 119; and
(b) the employer:
(i) obtains other acceptable employment for the employee; or
(ii)cannot pay the amount.
(2)On application by the employer, the FWC may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that the FWC considers appropriate.
(3)The amount of redundancy pay to which the employee is entitled under section 119 is the reduced amount specified in the determination.
The effect of this section is that where an employer establishes that it obtained “other acceptable employment for the employee” or “cannot pay the amount”, the Commission has the discretion to reduce the employee’s redundancy pay entitlement to a specified amount that the Commission considers appropriate (which may be nil).
Relevant Case Law
Deputy President Lake provided the following summary of Commission cases concerning applications to reduce redundancy pay on the ground of incapacity to pay in Application by Zuza Pty Ltd [2020] FWC 6575:
“Determining whether the employer “cannot pay” the redundancy appears to be a question that imports some temporal significance. Where there is some reduced trading capacity, but there still exists some avenue to make payment (in the form of either cash at bank, or a continuing cash flow) this would indicate that it may be difficult to show a current incapacity to pay.[6] “Foreshadowed cash flow issues” that are yet to occur cannot combat the fact that an employer has sufficient funds currently to meet their obligation. However, such a determination is not made in isolation and requires a proper consideration of the totality of the employer’s position; it is possible that a solvent employer with continuing cash flow can be found to be incapable of paying out an employee.[7]
Where there is capacity to pay some of the redundancy amount, but not all, a partial reduction can be awarded[8].
…
Other decisions of this Commission have considered numerous and varied factors. It is questionable how relevant each of them is, and what weight should be attributed, but is sufficient to say they have been the subject of some consideration previously. Factors that have been considered include:
· Viewing a complete picture of the financial circumstances of the employer, which is not simply limited simply to a bank statement;[9]
· The extent of the financial difficulty being faced;[10]
· What the remaining assets and receivables of the business are, and whether they would give rise to a realisable gain;[11]
· Whether the Applicant had done the “right thing” by the employee, attempting to pay out the employees’ other owing statutory entitlements;[12]
· Whether there is any realistic prospect of any improvement in the financial position of the company (was the business shut, if so permanently; is there any future anticipated cash flow?);[13]
· Whether varying the redundancy would merely be of assistance, but is not borne out of an incapacity.[14]”
Consideration
I find the evidence filed by the parties establishes the following:
(i)Hercules Group Services is the trustee for the Hercules Group Services Unit Trust and is 100% owned by Hercules Group Holdings Pty Ltd (Hercules Group Holdings). Hercules Group Holdings is 100% owned by Leigh & Harley Holdings Pty Ltd as trustee for The Harleigh Family Trust. Hercules Group Holdings is also a 100% owner of Hercules Carparking Systems 2009 Pty Ltd (Hercules Carparking Systems 2009). Hercules Carparking Systems 2009 is the 100% owner of the following five companies:
- Hercules Carparking Systems (Melbourne) Pty Ltd;
- Hercules Carparking Systems 2004 Pty Ltd;
- Hercules Complete Lifting Solutions Pty Ltd;
- Hercules Complete Engineering Pty Ltd; and
- Hercules Carparking Systems (WA) Pty Ltd.[15]
(ii)Hercules Group Services operates a services trust for the Hercules group of companies and only receives management fees from other companies in the group to cover its monthly outgoings. It does not generate sales revenue and paid 99.9% of the payroll costs for the Hercules group of companies from July to September 2023.[16]
(iii)The $1,019,691 loss suffered by Hercules Group Services for the period of July to September 2023 should not be viewed in isolation, given the corporate structure of the Hercules group of companies. It is clear all the entities within the Hercules group of companies have the same ultimate ownership and that Hercules Group Services is funded by payments made to it by other entities within the group.[17]
(iv)The Hercules group of companies is facing significant financial difficulties. The group made an overall net loss of $445,663[18] from July to September 2023 and only held $60,451.47[19] in its various bank accounts. Mr Elsley indicated internal discussions are occurring regarding entities within the group being put into liquidation and the group is struggling to find funds to meet its payroll obligations.
(v)The Hercules group of companies is currently seeking additional access to credit from St George Bank and the application has received internal approval from the bank to proceed to a full application.[20]
(vi)The Hercules group of companies is still trading and received total revenue from sales of $2,115,092 from July to September 2023.
(vii)The Hercules group of companies is currently contracted to perform a significant number of projects, which are at various stages. Some projects are nearing completion, revenue from some projects will not be received until 2024 onwards.[21]
After weighing all the evidence, I am not satisfied that Hercules Group Services “cannot pay” Mr Virago “the amount” of $27,500.
The excerpts of bank statements filed by Hercules Group Services show that the group of companies had a total of $60,451.47 in its various bank accounts as at around 10 November 2023. I was not provided with any evidence to show why these savings cannot be utilised to pay Mr Virago’s redundancy entitlement of $27,500. When I raised this issue with Mr Elsley during the hearing, he indicated that using this money to pay Mr Virago will mean other expenses such as rent cannot be paid. Mr Elsley presented as a credible manager that is obviously dealing with some very difficult financial issues and I have no reason to doubt his evidence. However, the Commission’s role in relation to an application under s.120 of the FW Act is not to decide what is the most appropriate use of an employer’s assets or revenue. There is no jurisdiction to make an order reducing an employee’s redundancy pay unless the Commission is satisfied the employer “cannot pay the amount”. In this case, I have evidence that demonstrates the Hercules group of companies has sufficient savings to pay Mr Virago his redundancy entitlement. I do not consider Mr Elsley’s statements about the potential impacts of making the payment, in the absence of supporting evidence, to be sufficient to establish the payment “cannot” be made.
I also do not consider the balance sheet evidence filed by Hercules Group Services to be sufficient to make a proper informed assessment of the Hercules group’s overall financial position. Given the role performed by Hercules Group Services within the group, it is unsurprising, as submitted by Mr Virago, that this entity is operating close to breakeven. I have no evidence about the balance sheet position of the other entities within the Hercules group. Given Hercules Carparking Systems 2004 Pty Ltd generated $1,767,214 in sales from July to September 2023 and made a net profit of $398,380 during this quarter,[22] I could not assume that all the entities within the Hercules group do not have significant assets to call upon.
I also consider there is merit to Mr Virago’s submission that it is unlikely that the Hercules group’s credit application to the St George Bank would have proceeded beyond an initial assessment to a “full application” if the group is not able to make a payment of $27,500 to Mr Virago. However, as identified above, I ultimately do not have sufficient evidence to make an overall assessment of the Hercules group’s financial position.
Given I am not satisfied Hercules Group Services “cannot pay” the amount of $27,500 to Mr Virago, I do not have jurisdiction to reduce “the amount” and the application must be dismissed.
In the event I was satisfied that Hercules Group Services “cannot pay” the amount of $27,500 to Mr Virago, it would have been quite difficult to make an assessment regarding whether it would be appropriate to reduce Mr Virago’s redundancy payment.
On one hand, Mr Virago has lost his job through no fault of his own and had accrued his redundancy entitlement through nearly eight years of service with Hercules Group Services. In addition, Mr Elsley indicated a significant problem currently facing the Hercules group is that builders have not made payments owed to the group. It does not sit comfortably with me for a consequence of builders not meeting their legal obligations to the Hercules group to be that Mr Virago loses some of his redundancy entitlement.
On the other hand, Mr Elsley referred to six employees potentially being made redundant if Hercules Group Services must pay Mr Virago’s full redundancy entitlement. That is obviously concerning and would weigh in favour of some relief being granted.
Another factor that would need consideration is that if the worst comes to fruition, and entities within the Hercules group enter liquidation, an order from the Commission may deprive employees of entitlements that could potentially be accessed through the Commonwealth Government’s Fair Entitlements Guarantee.
In any event, I do not need to reach a conclusion on these issues. Given I am not satisfied Hercules Group Services cannot make the redundancy payment, there is no jurisdiction to reduce the amount payable to Mr Virago.
Conclusion
I am not satisfied that Hercules Group Services “cannot pay” Mr Virago the amount of $27,500. I dismiss the application to reduce his redundancy pay.
As discussed above, I have sympathy for the difficulties Mr Elsley is trying to deal with on behalf of the Hercules group. Mr Virago struck me as a reasonable person during the hearing, there may be scope for the business to ask him whether a periodic payment plan can be agreed. That is not something I can deal with in relation to this application. In the absence of Mr Virago’s agreement, the redundancy pay should be processed as one payment.
COMMISSIONER
Appearances:
Mr Phil Elsley on behalf of Hercules Group Services Pty Ltd.
Mr Neil Virago on behalf of himself.
Hearing details:
22 November.
Microsoft Teams.
2023.
[1] Form F45A filed on 23 October 2023, part 1.1.
[2] Exhibit A1.
[3] Exhibit A5.
[4] Form F45A filed on 23 October 2023, part 1.5.
[5] Horm F45A filed on 23 October 2023, part 2.3.
[6] Application by Worthington Industries Pty Ltd [2020] FWC 1912.
[7] Application by Mason Architectural Joinery [2020] FWC 1897, [5]-[6].
[8] Techno Fitouts Pty Ltd v Susan Ann Grant[2020] FWC 3969, [37]-[39].
[9] Applications by Yu Kitchen Pty Ltd [2020] FWC 4151.
[10] Baywood Products Pty Ltd v Mervyn Inall[2010] FWA 9303.
[11] Techno Fitouts Pty Ltd v Susan Ann Grant[2020] FWC 3969, [37]-[39].
[12] Applications by Yu Kitchen Pty Ltd [2020] FWC 4151.
[13] Ibid.
[14] Coal River Farm Investments Pty Ltd T/A Coal River Farm [2020] FWC 3558.
[15] Exhibit A5.
[16] Submission by Mr Virago and Exhibit A2 which shows Hercules Group generated no revenue from sales but paid virtually all payroll costs for the Hercules group of companies, along with other expenses.
[17] Exhibits A2, A4 and A5.
[18] Exhibit A2.
[19] Exhibit A3.
[20] Exhibit R3.
[21] Exhibit R1, Exhibit R2 and information provided by Mr Elsley during the hearing.
[22] Exhibit A2.
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