Application by Southern Cross Engineering Pty Ltd

[2021] FWC 2277

[2021] FWC 2277

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.120—Redundancy pay

Application by Southern Cross Engineering Pty Ltd
C2021/732; C2021/733; C2021/734; C2021/735; C2021/736; C2021/739; C2021/777

DEPUTY PRESIDENT LAKE BRISBANE, 23 APRIL 2021

Variation of redundancy pay – incapacity to pay – where employer had significant debt and no income stream – multiple applications– redundancy pay varied to nil – application not successful.

Background

[1] Southern Cross Engineering Pty Ltd (Southern Cross or the Applicant) has applied pursuant to s.120(2) of the Fair Work Act 2009 (the Act) to have the Commission reduce to nil the redundancy entitlement of five employees (the Respondents). The Applicant contends that they have an incapacity to pay and that all of the employee’s entitlements should be reduced accordingly.

[2] The Respondents were all employees who were involved in the Brisbane facility and as part of an agreement with another organisation to purchase specific assets and intellectual property this meant the winding down of the Brisbane operation. The objective was to complete any existing contracts and then cease operations from the Brisbane office.

[3] Given that variation is sought under the premise that the Applicant has an incapacity to pay, I find that it is appropriate to deal with all of the applications concurrently. The applications are highly analogous and deal with a “common substratum of facts”. 1 I consulted the parties on the hearing of the applications on the papers – this was not objected by any party. To best fulfil the Commission’s objective to be fair, just, and efficient, the matters are to be determined concurrently and on the papers.2

[4] One of the seven respondents sought to be represented. Granting permission to be represented under s 596 requires the satisfaction of two elements. 3 The first pre-requisite: the presence of one of the criteria under s 596(2), does not immediately invoke the right to representation and establishing satisfaction “involves an evaluative judgment akin to the exercise of discretion.”4 Once that first step is satisfied, the second step “involves consideration as to whether in all of the circumstances the discretion should be exercised in favour of the party seeking permission.”5

[5] I exercised my discretion and granted permission pursuant to s.596(2), to the Respondent Ms Coombes to be represented, as I was satisfied that the matter would be dealt with more efficiently and effectively, considering the complexity of the matter and the capabilities of the parties.

Relevant Legislation

[6] Section 119 and 120 of the Act provide:

119 Redundancy pay

Entitlement to redundancy pay

(1) An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:

(a) at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or

(b) because of the insolvency or bankruptcy of the employer.

Note: Sections 121, 122 and 123 describe situations in which the employee does not have this entitlement.

Amount of redundancy pay

(2) The amount of the redundancy pay equals the total amount payable to the employee for the redundancy pay period worked out using the following table at the employee’s base rate of pay for his or her ordinary hours of work:

Redundancy pay period
Employee’s period of continuous service with the employer on termination	Redundancy pay period
1	At least 1 year but less than 2 years	4 weeks
2	At least 2 years but less than 3 years	6 weeks
3	At least 3 years but less than 4 years	7 weeks
4	At least 4 years but less than 5 years	8 weeks
5	At least 5 years but less than 6 years	10 weeks
6	At least 6 years but less than 7 years	11 weeks
7	At least 7 years but less than 8 years	13 weeks
8	At least 8 years but less than 9 years	14 weeks
9	At least 9 years but less than 10 years	16 weeks
10	At least 10 years	12 weeks

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.

[7] Section 121 of the Act provides:

121 Exclusions from obligation to pay redundancy pay

(1) Section 119 does not apply to the termination of an employee’s employment if, immediately before the time of the termination, or at the time when the person was given notice of the termination as described in subsection 117(1) (whichever happened first):

(a) the employee’s period of continuous service with the employer is less than 12 months; or

(b) the employer is a small business employer.

(2) A modern award may include a term specifying other situations in which section 119 does not apply to the termination of an employee’s employment.

(3) If a modern award that is in operation includes such a term (the award term), an enterprise agreement may:

(a) incorporate the award term by reference (and as in force from time to time) into the enterprise agreement; and

(b) provide that the incorporated term covers some or all of the employees who are also covered by the award term.

[8] Section 120 confers on the Commission a discretion to reduce the amount of redundancy pay to which an employee would otherwise have been entitled under s.119 of the Act.

[9] Section 120(1) states that the section applies if an employee is entitled to be paid an amount of redundancy pay under s.119, and the employer ‘cannot pay [the redundancy] amount’. These are the jurisdictional facts that must be established before the Commission may exercise its discretion. Section 120(2) then states that the Commission ‘may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that the FWC considers appropriate’. If the Commission makes an order under s.120(2), the amount of redundancy pay to which the employee is entitled is the reduced amount specified in the determination (see s.120(3)).

Relevant Case Law

[10] 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

[11] Where there is capacity to pay some of the redundancy amount, but not all, a partial reduction can be awarded:

“[37] … The Applicant does not have the means to pay the full redundancy amount or the money in the bank to do so. The Applicant has demonstrated a considerable business downturn and financial difficulty and significant outstanding debts. The Profit and Loss statements provided by the Applicant show losses of $49,972 in March and $22,585.66 in April. While the Applicant provided evidence of a profit for May of $22,541.22, $43,716 of reported income from May was made up by JobKeeper and government stimulus packages. Mr O’Brien’s uncontested evidence was that he has only undertaken one further job since the redundancies, which was performed by Mr O’Brien and a casual employee.   

[38] I do however note that the Applicant now has the benefit of the JobKeeper payments to assist in paying remaining staff, and is owed debts of some $88,000 by creditors. Additionally, Ms Grant was entitled to four weeks of redundancy pay and now faces the loss of permanent work. For that reason I do not consider it appropriate to reduce the redundancy pay to nil, but consider a reduction is appropriate.

[39] I consider a reduction in the redundancy pay owing of one week is appropriate. This takes into consideration the Applicant’s current financial situation, the fact that it is unlikely that they will obtain money from new contracts in the near future, the notice period provided to Ms Grant, and the casual employment found by Ms Grant. I acknowledge businesses require cash on hand to operate but I also note that Mr O’Brien has given evidence he is not presently taking on new work.”  8

[12] 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 and if so, was that permanent? 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

Submissions

[13] As to the incapacity, the Applicant’s submissions made clear that:

“The businesses Brisbane operations were to shut down and all employees to be made redundant. They stated that they had insufficient funds and insufficient projected revenue to meet its obligations to pay the respondents their redundancy entitlements.

Further they stated that they were unable to continue trading and claimed they were unable to secure additional funding for an overdraft. The funds that they did have were to be used to assist the wind down of the business, finalise minor works and make final termination and superannuation payments.”

[14] To support their application, they provided a forecasted three-month cashflow, a list of creditors and debtors, a financial statement for the year ending 31 March 2021, a forecasted balance sheet, and two bank balances (one for February and another for March).

[15] The respondents oppose the reduction of the redundancy entitlements. A number are long serving, and some are not. I note that one of the respondents retained legal representation and made the following submission regarding the applicant’s material:

“The documents provided by the applicant are unaudited and incomplete. For example only, note the absence of the notes to the balance sheet which would seek to explain liabilities and may disclose (as may be the case for reasons explained below) intercompany arrangements and director loans. They cannot, and should not be relied on by the FWC as evidence of an inability to pay redundancy pay to Ms Coombes now;

The balance sheet attached to Mr Petrie’s email of 1 March 2021 (comprising SCE’s further submissions) suffers the same issues. It also excludes (without explanation) property plant and equipment previously valued as at 2020 in the amount of $737,809 and introduces only fixed assets and Stock totalling $160,000. This document too cannot, and should not, be relied on by the FWC as evidence of an inability to pay redundancy pay to Ms Coombes now;

Regarding the balance sheet to Mr Petrie’s 1 March 2021 email, liabilities for which directors are personally liable (including ATO GST and Payroll Tax) have been included. While their inclusion is not inappropriate, it should be noted that the creditors to those amounts have alternative methods of recovery (being directly against the directors of SCE) and can be excluded from the assessment of what assets and funds are available to SCE;

Neither document evidences a present inability of SCE to pay Ms Coombes’ redundancy pay. Rather, they both show sufficient cash at hand (and assets) to pay the redundancy entitlement in full.”

[16] The representative for Ms Coombes further comments in her submissions:

“(a) In the F45A application Mr Petrie does not say that SCE cannot pay the redundancy pay of Ms Coombes. Instead, Mr Petrie says “We have insufficient cash funds and subsequent cash inflows going forward to meet our obligations to pay suppliers, staff, the ATO and other regulatory bodies”. SCE has therefore failed to enliven section 120 of the FWA. Notably, the submission does not address the ability to pay the redundancy pay now, leaving aside the other liabilities SCE may have.

(b) On 1 March 2021, an attempt was made to suggest a present inability to pay the

redundancy pay however what was said was “SCE has insufficient funds currently, and insufficient projected revenue, to meet its obligations to pay staff in respect of their redundancy entitlements. The limited funds which SCE currently has will be used to pay essential staff to assist with the wind down of the business, finalise minor works required for existing clients, and make final termination and superannuation payments to staff”.

(c) In submissions filed on 10 March 2021, SCE states “An order requiring the Applicant to make redundancy payments would leave the Applicant with no ability to continue to pay staff assisting with the wind down of the business, or make final staff termination payments (comprising pay in lieu of notice and accrued and unused leave entitlements) and superannuation payments.” Yet, in contradiction to this allegation, later in the submissions it is said SCE has no employees.”

[17] The conclusion of the submissions made on behalf of Ms Coombes is that there is no evidence to conclude that the Applicant is unable to pay the redundancy. What the documents make explicit is that there are sufficient assets and cash, but the organisation would prefer to allocate those funds to other creditors. Furthermore, there is a lack of financial information on the larger corporate structure of Southern Cross Engineering and that the New Zealand entity is unwilling to support the Applicant meet its employee obligations in the form of redundancy payments.

[18] I find that the submissions made by the representative for Ms Coombes apply more broadly to each of the respondents. Accordingly, I take the view that the issues raised in this submission hold equal weight to the six other respondents.

[19] It is my view that although the Applicant contends that it is unable to pay the seven redundancies, they in fact have the ability to do so. The company structure and the assets that are held indicate that Southern Cross Engineering has the capacity to pay and given the employees have dutifully fulfilled their obligations and provided faithful service to the company until the closure, they should be paid the redundancy entitlements they are owed.

[20] I find that the Applicant can pay the redundancy amount and does not satisfy s.120(1)(b)(ii) of the Act.

Conclusion

[21] Considering all of the circumstances, I consider that I should not exercise my discretion to reduce the Respondents’ redundancy pay. I order that all of the redundancy entitlements are payable.

DEPUTY PRESIDENT

Printed by authority of the Commonwealth Government Printer

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 1   Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457, 512 (Mason J).

 2   Fair Work Act 2009 (Cth) s 577.

 3   Wellparks Holdings Pty Ltd t/as ERGT Australia v Mr Kevin Govender[2021] FWCFB 268.

 4   Asciano Services Pty Ltd v Zak Hadfield [2015] FWCFB 2618, [19].

 5   Wellparks Holdings Pty Ltd t/as ERGT Australia v Mr Kevin Govender[2021] FWCFB 268, [48].

 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