Browns English Language School P/L v Ji Hyun (Jianna) Kim et al
[2021] FWC 3633
•24 JUNE 2021
| [2021] FWC 3633 |
| FAIR WORK COMMISSION |
DECISION |
Fair Work Act 2009
s.120—Redundancy pay
BROWNS English Language School P/L
v
Ji Hyun (Jianna) Kim et al.
(C2021/2180)
COMMISSIONER SIMPSON | BRISBANE, 24 JUNE 2021 |
Application to vary redundancy pay for incapacity to pay.
INTRODUCTION
[1] On 19 April 2021, Browns English Language School P/L (the Applicant/the School) made an application pursuant to s.120 of the Fair Work Act 2009 (the Act) to have the Fair Work Commission (the Commission) vary the redundancy entitlements for Mrs Ji Hyun (Jianna) Kim; Ms Hiromi Kikuchi; Ms Kylie Davenport; Ms Suzanne James; Ms Rebecca Hungerford; Mr Victor Corpuz; Mrs Jung A (Jenny) Jin; Mrs Xiaoqian (Naomi) Zhang; Mr Jinqiu (Leo) Liu; Ms Charlene Palmer; Ms Vanessa Kudeken; Ms Nicole Ovalles Nugent; Ms Rafaela Sucasas; Mrs Lady Montero Maldonado (the Respondents), on the basis of the Applicant’s inability to pay.
[2] The Respondents’ entitlement to redundancy pay is in accordance with the Educational Services (post-Secondary Education) Award 2020 (the Award).
[3] The matter was listed for a directions and conference to be held on 19 May 2021.
[4] On 14 May 2021 Mr Brown sent email correspondence to chambers as follows:
“Good Afternoon Olivia,
To the above mentioned matter which is set for conference this Wednesday, when making the application we indicated we had some supporting material that was commercial sensitive and confidential which we did not want to provide to all the parties and made public.
I’m not sure if this has been passed onto Commissioner Simpson, but please could you kindly provide instructions of how Commissioner Simpson would like to receive this financial information in chambers?
I would like to confirm that I will be attending the conference and my best contact number is Mobile: 0412 710 437. I would also like to have a support person for this conference call.
Thank you Olivia.
Best regards,
Richard”
[5] On 17 May 2021 Mr Brown contacted chambers by telephone and indicated his views that it would be beneficial for the Commission to have material for the conference. It was explained to Mr Brown that any material sent to chambers must be copied to all parties however if he was seeking for documents to be confidential, he could request that in the email and the Commissioner would consider the request. An email was sent to Mr Brown from chambers later that day as follows”
“Dear Mr Brown
I refer to the above matter and telephone conversation with chambers this morning where you sought clarification on the process of submitting sensitive and confidential information to chambers.
Please be advised the Commission has an obligation to ensure procedural fairness is afforded to all parties in matter. The general rule is that any documents filed in the Commission should be provided to all parties in the matter.
If you are seeking to submit documents that you wish to remain confidential, you may make a request to the Commissioner at the start of the conference. It is also open for you to seek an application under s 593 and 594 of the Fair Work Act that the documents be suppressed.
Kind regards…”
[6] On 18 May a file note records that Mr Brown made a telephone call to chambers asking whether he could ask chambers questions without chambers sending an email copied to all of his staff. It was explained to Mr Brown the Commission could answer procedural questions, but the Commission has a strict requirement to remain transparent and it is not appropriate for chambers to have conversations with one party without the others present. Mr Brown sought assurance that if he sent chambers financial documents, that they would not be forwarded to staff. The requirements of procedural fairness were again explained to Mr Brown and the process regarding making an application under s.593/594 of the Act.
[7] Following the conference on 19 May Directions were issued for filing of materials by the parties. The Applicant was directed to file and serve its statements and submissions by 2 June 2021, and for any Named Respondent to file by 16 June 2021. The matter was listed for Hearing on 21 June 2021 in Brisbane.
[8] On 2 June Mr Brown filed a witness statement.
[9] On 7 June a Form 53 was filed notifying Mr John Farren of Farren McRae Workplace Lawyers acted for Ms Sucasas.
[10] On 8 June chambers was copied into email correspondence between Mr Brown to Mr Farren. It was apparent from the correspondence that Mr Farren on behalf of his client had requested that Mr Brown serve his application unredacted, as when the application was served on Mr Farren’s client the copy served was redacted to remove the details of the other 13 Respondents to the application.
[11] Mr Brown by response advised Mr Farren that the Applicant objected to legal representation and that the Applicant was electing not to provide an unredacted copy of the application as the redacted information was personal and confidential information. The email indicated an unredacted copy would be provided if ordered by the Commission.
[12] On 8 June a Form 48 application for Directions on Procedure was filed on behalf of Ms Sucasas seeking Mr Brown serve upon Ms Sucasas’ lawyer an unredacted copy of the application in this proceeding. On 10 June a direction was issued that the Applicant serve an unredacted copy of the F45A Application on all Respondents. Mr Farren was also directed to serve any further submissions concerning leave to represent his client by 5:00pm Wednesday 16 June 2021.
[13] On 14 June 2021 Mr Brown sent email correspondence to chambers seeking clarification about what documents needed to be served and whether he needed permission of the Respondents to disclose information concerning them. Mr Farren sent correspondence to chambers strongly objecting to Mr Brown’s repeated attempts to engage in direct communications with my chambers by telephone and email without his firm’s prior knowledge or consent, and further that the Commission’s directions “could not have been plainer.” It was also stated that the Applicant had not replied to a written request for the provision of the unredacted application following the Direction issued on Thursday 8 June.
[14] It was submitted that the Respondents were due to file and serve submissions opposing the Application and witness statements by 5.00pm Wednesday 16 June 2021 and the ability to comply with those directions was impaired by not being in possession of the Applicant’s full unredacted application.
[15] On 14 June urgent orders were sought that the Applicant comply with the Commission’s Directions of 10 June 2021 and amendments be made to the Directions to allow the Respondents time to file and serve their material, or that the application be dismissed pursuant to s. 587 of the Act.
[16] On 15 June orders were issued that the Applicant comply with the Commission’s Directions of 10 June 2021 by 10:00am tomorrow 16 June 2021. The Respondents were granted an extension to file their material until 5:00pm Friday 18 June 2021. Parties were reminded to include allparties to the matter when corresponding with chambers.
[17] On 16 June Mr Brown forwarded an unredacted copy of his application with attachments to all Respondents in accordance with the Commission’s Direction. Mr Corpuz also filed a statement on 16 June.
[18] On 17 June a Form 53 application was filed giving notice that Ms Davenport would seek leave to be represented by Mr Stephen Dryley-Collins of Supportah Australia Pty Limited.
[19] The matter was listed for Hearing at 12pm 18 June to deal with issue of legal representation. At the conclusion of the hearing on 18 June permission was granted for Ms Sucasas and Ms Davenport to be represented. Following the oral decision to grant legal representation Mr Brown submitted it was unfair given he was self-represented. I raised with Mr Brown whether he wanted to seek adjournment and he said no.
[20] On 18 June witness statements were filed opposing the application by Ms Zhang, Ms Kikuchi, Ms Montero Maldonado, Ms Hungerford, Mr Liu, Ms Kudeken and Ms Jin.
[21] On the same date witness statements and written submissions were filed by Ms Sucasas, Ms Davenport and Ms Ovalles Nugent.
[22] At 6.30pm on Sunday 20 June, the evening before the Hearing was to commence, Mr Brown sent email correspondence to chambers seeking an adjournment of the Hearing the following day, including on the grounds he needed more time to respond to the material filed by Respondents and to seek further advice.
[23] Objections were filed by seven of the Respondents to the request for an adjournment, including the two Respondents represented in the matter. Submissions opposing adjournment included that:
• The Notice of Listing for the hearing dated 20 May 2021 plainly stated to the parties that “this notice of listing is definite. An adjournment will only be granted at the discretion of Commissioner Simpson and only on substantial grounds. An adjournment request will only be entertained if it…has been made in a timely manner”. To request an adjournment at 6.30pm on a Sunday evening before a hearing is due to commence at 10.00am on the Monday morning could not, on any strained interpretation, be considered to have been made in a timely manner;
• The Applicant had its opportunity to file its evidence and submissions and chose not to support bare witness testimony with substantial financial documentation;
• The Applicant had its opportunity to apply for an order suppressing the publication of confidential commercial information and was provided the application form by chambers a month ago, but chose not to make any such application;
• The Applicant rejected a request for voluntary disclosure of the unredacted application documentation, then opposed an application for directions that he do so and then willfully contravened the Commission’s direction to do so;
• The Applicant now complains that it is unfair that he only received the Respondents’ evidence and submissions late and has not had time to review it, when the amended time allowed by the Commission for those filings was a direct consequence of the Applicant’s own delinquency;
• The Respondents are prepared to proceed. Those Respondents who have been fortunate enough to have found employment since being terminated by the Applicant will have made work arrangements to attend the hearing.
• Legal costs will be thrown away if the requested adjournment is granted. Legal costs have been caused responding to this unmeritorious adjournment request.
• The application was made less than two business hours before the final hearing;
• The Applicant had repeatedly rested on its rights to lead evidence, including as it relates to its financial position, and that resting has now informed the submissions of multiple respondents;
• It was the Applicant’s conduct that brought about the amended directions that delayed submissions by the Respondents being pushed back until 5pm Friday 18 June 2021;
• The Commission as constituted sought the Applicant’s view on a potential adjournment of Monday’s final hearing at the interlocutory hearing on Friday 18 June 2021 and Mr Brown on behalf of the Applicant said he had nothing further to add;
• The time for the Applicant to object was when the directions orders were issued and subsequently amended;
• The delay will not add any utility and is prejudicial to the Respondents.
[24] The application for adjournment was denied. At the hearing on 21 June Mr Brown represented the Applicant and Ms Sucasas was represented by Mr Farren and Ms Davenport was represented by Mr Dryley-Collins. Ms Ovalles Nugent, Ms Hungerford, Mr Liu, Mr Corpuz, Ms Kim, Ms Jin, Ms Montero Maldonado, Ms Zhang, Ms Kikuchi and Ms Kudeken represented themselves.
[25] At the commencement of the Hearing the parties agreed to a brief adjournment to attempt to settle the matter. Mr Brown also advised the Commission he did not intend to cross examine any of the Respondents’ witnesses. The matter was adjourned however attempts at settlement were unsuccessful and the Hearing recommenced at 10.55am.
LEGISLATION
[26] The Award provides at clause 32 that Redundancy pay is as provided in the NES, as outlined in the following sections of the Act.
[27] Section 119 of the Act provides as follows:
“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 |
[28] Section 120 of the Act further provides:
“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.”
EVIDENCE
[29] Mr Richard Brown, Managing Director and 100% shareholder of the Applicant School, adopted his witness statement. 1
[30] Mr Brown stated that the School was established in 2003, and has expanded to a total of four campuses, two in Brisbane and two on the Gold Coast. He said that as a result of the COVID-19 pandemic, and as of 1 June 2021, the School has collapsed three of its four campuses, and now only has one remaining campus on the Gold Coast.
[31] Mr Brown’s evidence was that the School is negotiating an early lease exit for its remaining campus, by way of a lease surrender prior to the lease expiry date. He linked an online advertisement for the lease in support of this statement. Mr Brown stated that once the lease has been existed, the remaining campus will also close.
[32] Mr Brown stated that as at 6 January 2020, the School had more than 825 students, 75 casual staff and 36 permanent staff; however as at 7 June 2021, the School had zero English language classes running and zero English language students, three casual staff and nine permanent staff. He amended his statement at paragraph 6 by adding that as of last week, Browns Professional VET business operating under the same license also had zero classes running and zero vocational students studying.
[33] Mr Brown also amended his statement at paragraph 7 saying as of last week Browns English and Browns Professional VET had zero casuals and six permanent staff, and as of next week will have zero casual staff and five permanent staff. Further two of the permanent staff are on annual leave therefore there are only four working permanent staff.
[34] As to the 14 Respondents against which this application has been brought, Mr Brown stated that they would still be working at the School if not for the COVID-19 pandemic, which has taken away the School’s staff, students and “continues to decimate [the] industry”. His evidence is that the Applicant chose to make the 14 Respondents redundant rather than stand them down, despite stand-downs being a cheaper option for the organisation as this was the “most honest and transparent approach given borders are expected to remain closed until 2022”. Mr Brown stated that the financial situation faced by the Applicant is at the fault of no one and is entirely the result of the unprecedented pandemic.
[35] Mr Brown stated that the Applicant’s biggest competitor EC English on the Gold Coast and Brisbane went into liquidation on the 24 March 2021. He linked an article in support of this statement.
[36] Mr Brown gave evidence that since December 2020, the Applicant has lost money every month up until April 2021. He said that the May 2021 “P&L” is yet to be finalised; however, he stated that monthly losses are increasing. His evidence is that the total losses from December 2020 to April 2021 is -$418,153.08.
[37] Mr Brown gave evidence that he injected $500,000 into the School in May 2020 to keep the business afloat, this decision was made under the assumption that international borders were reopening in early 2021. However as at April 2021, the School has been experiencing negative tuition revenue, as they are refunding more students than revenue realised. Mr Brown forecasted zero dollars in tuition revenue for the financial year 2021/2022, as per the government announcement that international borders will gradually reopen in 2022. Mr Brown amended paragraph 15 of his evidence to state that Browns English and Browns Professional forecast zero dollars in tuition revenue for the financial year 2021/2022.
[38] Mr Brown gave evidence that the Applicant would have liked to pay out 100% of the redundancy to the 14 Respondents, however it does not have the financial capacity to do so. His evidence was that if the Commission orders the Applicant to pay any percentage of the redundancy payments, it will be forced to make all remaining staff redundant and it will not be able to pay out their entitlements, this will then trigger the business to enter administration as it does not have the capacity to make any further payments to creditors.
[39] In response to the matters raised by one of the Respondents Ms Suzanne James, Mr Brown gave evidence that it was incorrect to say one school has closed and another opened, as Browns Professional (VET courses) were relaunched in October 2020, and VET courses are run under an RTO – Brown Professional which has been in place since 2014. Further the Applicant was not refurbishing rooms as it was merely cleaning up a campus as a tenant in preparation for a new tenant as required by the landlord. Further it had not employed staff as advertisements on Seek were contingent on matters that did not come to fruition.
[40] Mr Brown raised with the Commission that Browns Professional VET courses were relaunched in October 2020 however this was unsuccessful as it was difficult to attract domestic students without government funding.
[41] Mr Brown indicated he wished to say something in relation to the issue of the financial position of the business. Objections were raised to any new evidence being raised in the course of the hearing given that the Applicant had various opportunities to provide evidence of that nature and had chosen not to, and it would be prejudicial for the Respondents if that was to change at such a late stage. I indicated I did not intend to allow new evidence however in any event Mr Brown stated that in relation to the financial issue he did not wish to share or answer any questions on the solvency of the business on the basis that he may incriminate himself and sought guidance so that he did not incriminate himself.
[42] It was submitted for Ms Sucasas that if Mr Brown seeks to rely on his common law privilege against self-incrimination not to answer questions, the upshot will be the Commission will not have an answer and the Commission can draw whatever inference it believes appropriate.
[43] Mr Brown accepted as of today there were zero courses and zero students across the English School and VET school. Mr Brown said the business is running on a day by day basis and it depends on the government, in terms of support and the when the borders may be reopened. Mr Brown elected not to answer a question as to why he had not placed the Applicant into administration already.
[44] Mr Brown was asked why he did not disclose his accountant’s advice. His evidence was to the effect that the Commission indicated this information if sought to be relied upon would be provided to the Respondents, and that also providing commercially sensitive information could risk the recovery of the business and potentially place himself at risk of self-incrimination, that he had decided not to. He accepted that he wanted the Commission to see the information but not the Respondents.
[45] It was put to Mr Brown that if he wanted the Respondents to lose a right to their redundancy that they should get to see the financial position of the business. Mr Brown indicated he was concerned the information could have been shared beyond the Respondents and he had to make that decision.
[46] Mr Brown confirmed after the conclusion of his evidence that he did not wish to cross examine any of the Respondent witnesses and their statements were admitted into evidence unchallenged. The witness statements of Ms Ovalles Nugent 2, Ms Hungerford,3Ms Jin,4 Ms Kudeken,5 Mr Liu,6 Ms Kikuchi,7 Mr Corpuz8 and Ms Zhang,9 were marked as exhibits. After the conclusion of the Hearing it was identified that three of the statements were not admitted as exhibits and the parties were advised on 22 June the statements of Ms Montero Maldonado,10 Ms Sucasas11 and Ms Davenport12 would be given exhibit numbers.
[47] Ms Sucasas provided evidence that after agreeing to a temporary reduction in hours in 2020, was advised on 1 December 2020 she would only be paid the JobKeeper allowance and her hours would be further reduced to accommodate that. Ms Sucasas said on 16 February she was presented with options including taking paid leave or taking unpaid leave and keeping her entitlements for when the business got back to normal, or redundancy. Subsequent to that, discussions occurred about the amount of Ms Sucasas’ redundancy entitlement. On 2 March 2021 Ms Sucasas said she was told her redundancy would be calculated on the lower varied hours, however on 10 March she was informed it would be calculated on her ordinary hours under her contract.
[48] Ms Sucasas said she was asked if she wanted to work part time but advised the Applicant this would not work for her. Ms Sucasas said she was advised of her termination on 23 March.
[49] Ms Davenport gave similar evidence to Ms Sucasas about events throughout 2020 and being presented with options by the Applicant in March of 2021. Ms Davenport was close to reaching an entitlement to pro rata long service leave in the event of termination. Ms Davenport gave evidence concerning further discussions with the Applicant including options put forward by Ms Davenport to remain employed. Ms Davenport was advised of her termination on 24 March.
[50] Ms Davenport said she received confirmation by email on 19 April that her redundancy would be paid. Ms Davenport said on 20 April she became aware that the Applicant had made an application to the Commission to reduce her redundancy entitlements to zero. Ms Davenport provided with her evidence a copy of an ASIC Company Search indicating the Applicant was trading as at 17 June 2021.
[51] The statements of the other Respondent witnesses followed a similar course, including and complaining of a lack of any documentary evidence filed by the Applicant including a failure to disclose the Applicant’s assets or balance sheets, in order to support its claimed incapacity to pay. The statements in various ways set out their particular individual circumstances, and the adverse impact the granting of the application would have on them. I do not intend to set out in detail all of this evidence however it has been taken into account.
SUBMISSIONS
[52] Further to the evidence of Mr Brown, the Applicant submitted that the School was founded in 2003 by Mr Brown as a family owned and operated English language school that recruits international students from all over the world who travel to Queensland to learn English and experience Australian culture.
[53] The Applicant submitted that on 20 March 2020, the Australian Government closed all international borders, with exemptions only to Australian citizens, permanent residents, and their immediately family. International students have not been allowed to enter Australia for more than 12 months. The Applicant submitted that on 3 April 2020, international students remaining in Australia were informed by the Federal Government that “it’s time to go home”.
[54] The Applicant submitted that its student cohort is entirely comprised of international students. It submitted that the business model of looking after international students travelling to Australia to learn English has “endured the test of times”, including the H1N1 pandemic, Global Financial Crisis and significant policy changes by the Federal Government with respect to the attractiveness of Australia as a study destination. The Applicant submitted that its business model was robust, until the COVID-19 pandemic struck and “decimated [their] organisation along with all other English Language Schools across the country”. The Applicant noted that more closures of schools are anticipated as a further result of the pandemic on the international education sector.
[55] Further to the evidence of Mr Brown regarding the decrease in students, staff and campuses, the Applicant submitted that it is tracking to have zero students in the coming months, given it has traditionally relied solely on international students.
[56] The Applicant submitted that prior to 26 March 2021, it was supported by the JobKeeper payment scheme however, continued support has not been offered to the international education sector. Therefore, from 26 March 2021, all international education providers including English language, vocational, and higher education providers are receiving no further Federal Government support.
[57] The Applicant noted that Mr Brown is the 100% equity owner and sole director of the School, and he has a fiduciary duty to the company and must act honestly, in good faith and to the best of his ability in the interests of the company. The Applicant submitted that to date, it has taken all feasible expense reduction activities, including but not limited to consolidation of leased space, sub-leasing remaining premises until the lease expiry date, removal of company credit cards, cancellation of membership/associations, and elimination of any non-essential expenses. However, it submitted there will be no significant return of international students for the next 12 to 18 months, and while the School has sustained itself for the past 12 months due to JobKeeper, it is now required to make permanent changes to their operations, to reflect the reality of the future international education market.
[58] The Applicant submitted that even if borders re-open, it anticipates a worldwide reluctance to travel which will further impact the resurgence of international education. The Applicant submitted that it has no option but to abandon this business model and seek alternatives. It submitted that it is attempting to do this, and “must remain viable and in a position to retain its few remaining employees if it is to do so”.
[59] The Applicant relied on Mr Brown’s evidence as to the choice to make staff redundant rather than stand them down. The Applicant submitted that due to the announcement of borders remaining closed, the School is of the belief that it is in the best interest of staff to move on to other professional opportunities.
[60] The Applicant submitted that it is losing money each month and will continue to do so for some time. It relied on Mr Brown’s evidence that if the Commission orders it to pay the redundancies for the 14 Respondents, it will go into administration which will result in the remaining employees losing their jobs. The Applicant therefore seeks a variation to reduce redundancy payments by 100%.
[61] The Applicant added that it is prepared to provide an undertaking that, in the event the School is in a position to rehire any redundant employees in the 12 months following their termination, the School would treat their employment as continuous employment and recognise their prior service. This would mean that if those employees are made redundant at a later stage, they will receive severance calculated with reference to both their periods of service in recognition of any reduction granted by way of this application.
[62] In closing oral submissions Mr Brown said he made this application because the Applicant has a genuine incapacity to pay and he was sorry for the stress caused to the fourteen employees.
[63] Submissions for Ms Sucasas disputed the application and submitted that the Commission ought to dismiss the Application. Ms Sucasas submitted Section 120(1) of the Act provides 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”. The incapacity to pay the redundancy amount is the jurisdictional fact that must be established by the Applicant before the discretion to reduce the amount payable is enlivened.
[64] Section 120(2) of the Act then provides 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)).
[65] Ms Sucasas submitted that therefore, even if the jurisdictional fact of incapacity to pay the redundancy amount is established, it is still a matter for the Commission’s discretion as to whether an order under s. 120(2) of the Act is made.
[66] It was submitted by Ms Sucasas that in the recent decision of Application by Southern Cross Engineering Pty Ltd 13, the Deputy President conveniently summarised the relevant case law as follows [at 10-12] (citations removed):
“[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;
• The extent of the financial difficulty being faced;
• What the remaining assets and receivables of the business are, and whether they would give rise to a realisable gain;
• Whether the Applicant had done the “right thing” by the employee, attempting to pay out the employees’ other owing statutory entitlements;
• 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?);
• Whether varying the redundancy would merely be of assistance, but is not borne out of an incapacity.
[67] It was further submitted that it has been held that the Applicant must satisfy the Commission that it is not “financially competent or possessed of the necessary funds to make the payment, and has no reasonable source of funds”. 14
[68] Ms Sucasas submitted that the onus of proving the Applicant’s case falls upon the Applicant. It was further submitted that to enliven the Commission’s discretion under s.120 of the Act, the Commission must be satisfied to the civil standard of proof, that is on the balance of probabilities, that the jurisdictional fact of incapacity to pay the redundancy amount is proven.
[69] Ms Sucasas submissions highlighted that as was established in Briginshaw v Briginshaw (Briginshaw) 15, the seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue had been proved to the reasonable satisfaction of the Commission. In serious matters, the Court explained, “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony or indirect inferences.
[70] Ms Sucasas’ submissions further went on to note that in this case, the consequences of a finding that the Applicant is unable to pay the redundancies owed to the Respondents is very serious. It was therefore submitted that the Briginshaw principle requires the Applicant to place before the Commission exact, definite, direct and cogent evidence, otherwise the Commission will be unable to be satisfied that the jurisdictional fact of incapacity to pay the redundancy amount has been proven.
[71] Ms Sucasas submitted that the only evidence placed before the Commission by the Applicant in support of its Application is the witness statement of Richard Brown.
[72] Ms Sucasas’ submissions were that that the statement variously claims that:
• As at 7 June 2021, Browns English had zero English language classes running and zero English language students;
• As at 7 June 2021, Browns English had reduced to 3 casual staff and 9 permanent staff;
• Since December 2020, Browns English has lost money every month up until April 2021. May 2021 is yet to be finalised.
• Monthly losses are increasing and total losses from December 2020 to April 2021 are $418,153.08.
• Mr Brown injected $500,000 into Browns English in May 2020 to keep the business afloat;
• As of April 2021, Browns English has been experiencing negative tuition revenue as it is refunding more students than revenue raised;
• Browns English is forecasting zero dollars in tuition revenue for FY21/22;
• Browns English would have liked to pay out 100% of the redundancies to the 14 Respondents, however it does not have the financial capacity to do so;
• If the Commission orders the Applicant to pay any percentage of the redundancies owed to the Respondents it will be forced to make all remaining staff redundant, will not be able to pay their entitlements and will force the Applicant into administration as it does not have the capacity to make any further payments to creditors.
[73] It was also submitted that the statement fails to address key issues that are necessary to the Commission in deciding whether the Applicant is unable to pay the redundancies of the Respondents, including:
• What was the Applicant’s cash position at the commencement of the pandemic?
• What is the Applicant’s current cash position?
• What are the Applicant’s current assets and current liabilities and what ability has the Applicant got to realise current assets to pay the Respondent’s redundancies?
• What, if any, movements of monies and/or assets out of the Applicant have occurred since the pandemic commenced, including intercompany transfers, payments of dividends to shareholders, loans or other money or asset transfers to Directors, Shareholders or entities or persons related to the Applicant?
• What is the status of the $500,000 that Mr Brown says he injected into the Applicant in May 2020? For example, was that a Director’s loan that is either secured or unsecured as against other creditors such as the Respondents?
• What are the forward revenue and cash flow forecasts of the Applicant?
• If there is no business being conducted by the Applicant, what are the remaining staff doing?
• If the financial position of the Applicant is so parlous and the Applicant cannot pay its debts as and when they become due, why has the Applicant not already been placed in administration or liquidation by Mr Brown as its sole Director, to avoid trading insolvently?
[74] Ms Sucasas submissions noted that regardless of these deficiencies, none of the claims that were asserted by Mr Brown in his statement were substantiated by certified financial records or other authenticated business records, although all of those types of documents are readily available to the Applicant and Mr Brown has had three months since the redundancies to rally such corroborating evidence.
[75] Ms Sucasas submitted that in the language of the Court in Briginshaw, the bare claims asserted in Mr Brown’s statement are the very definition of inexact proofs, indefinite testimony or indirect inferences.
[76] For these reasons, Ms Sucasas submitted that the evidence placed before the Commission by the Applicant falls far short of that which could satisfy the Commission that the Applicant is unable to pay the redundancies of the Respondents to the requisite standard of proof. As such, it is submitted that the Applicant has failed to discharge the onus of proof to establish the requisite jurisdictional fact of incapacity to pay and the Application ought to be dismissed.
[77] It was submitted for Ms Sucasas’ that in the event that the Commission is satisfied that the Applicant is unable to pay the redundancy amounts owed, that the Commissioner ought not exercise its discretion to reduce the redundancy payment, either to nil or at all, for the following reasons.
[78] First, the Applicant terminated Ms Sucasas’ employment three days prior to her achieving seven years of continuous service, which would have entitled her to pro rata long service leave in the present circumstances. The urgency to terminate her employment on 23 March 2021 with immediate effect when she wanted the meeting of that day delayed so she could seek legal advice is unexplained by the Applicant. It is noted that, of the 14 Respondents, six were allowed to work through their notice periods. Of the other eight Respondents who were terminated with immediate effect:
• 3 Respondents (Sucasas, Davenport and Corpuz) were very close to achieving 7 years of service;
• 1 Respondent (James) was very close to achieving 11 years of service; and
• 1 Respondent (Hungerford) was very close to achieving 9 years of service.
[79] Ms Sucasas submitted that in the absence of a logical and cogent explanation of these material differences in treatment, it was submitted that it is open to the Commission to draw an inference that a degree of manipulation by the Applicant has occurred in order to minimise entitlements that could not be avoided by a proceeding such as the present application. If the Commission draws such an inference, it would be inequitable to further allow the Applicant to escape liability for payment of the Respondents’ redundancy payments by the exercise of the s. 120 discretion.
[80] Second, it was submitted that if the application was granted and the Applicant’s continued trade cannot be sustained and it is placed into liquidation, the Respondents will be prevented from recovering their entitlements via the Fair Entitlements Guarantee Scheme. This was found to be a sufficient reason for Deputy President Millhouse in Application by Company X 16 to state that she would not have exercised her s.120 discretion in that case, even if she had found that the Applicant was unable to pay the redundancy payments.
[81] In the alternative, it was submitted that if the Commission is satisfied that the Applicant is unable to pay the redundancies and is minded to exercise its discretion to reduce the amounts payable, then it is submitted that the redundancy amounts payable ought to be partially reduced.
[82] It was submitted by Ms Davenport that she maintains that the Applicant is in a position to pay her full owed redundancy entitlement and that the Employer has not demonstrated that they cannot pay the full redundancy amount.
[83] In the alternative, Ms Davenport maintains that the Employer has not demonstrated it cannot pay some of the owed redundancy payment.
[84] Ms Davenport submitted that in the witness statement of Mr Brown, reference is made to the Applicant being concerned about entering administration. Under the Corporations Act 2001 (Cth) (the Corporations Act) section 922(1)(aa), if the Applicant appoints an administrator under sections 436A, S436B or S436C, the business has become insolvent.
[85] In the absence of this process, and with reference to the ASIC information annexed to the Witness Statement of Ms Davenport, the Applicant must currently be solvent. It was submitted that under the Corporations Act s95A(1) ‘a person is solvent , and only if, the person is able to pay all the person’s debts, as and when they become due and payable’. In accordance with the Corporations Act s95A(2), in the absence of being insolvent, the Applicant must be solvent.
[86] Ms Davenport submitted that from 25 March 2021 the Applicant was required to make payment of the Respondents’ redundancy entitlement, which is a debt due and payable. Mr Brown, as the sole director of the Applicant, has made a representation to the Commission, noting that he has a legal obligation not to mislead the Commission.
[87] It was submitted that separately, Section 345 of the Act provides that the Applicant and Mr Brown were required to not make a misleading statement regarding workplace rights, which included redundancy entitlements.
[88] In accordance with the Corporations Act, it was submitted that as the School is still trading, and it cannot trade if insolvent, it can only be that the Applicant has the ability to pay redundancies. In the absence of any details about such an offense being committed, the Applicant is currently solvent.
[89] As the company is still solvent, Ms Davenport submitted that the Applicant must have the ability to pay the owed redundancy payment of the Respondent, presumably with cash at hand.
[90] It was submitted that this is a case where physical evidence will speak to the capacity for the Applicant not to be able to pay the redundancy entitlement. While acknowledging that the Commission is not strictly bound by ordinary rules of evidence, in Australian Broadcasting Tribunal v Bond 17, it was outlined at [20] that:
“If a statutory tribunal is required to act judicially, it must act rationally and reasonably. Of its nature, a duty to act judicially (or in accordance with the requirements of procedural fairness or natural justice) excludes the right to decide arbitrarily, irrationally or unreasonably. It requires that regard be paid to material considerations and that immaterial or irrelevant considerations be ignored. It excludes the right to act on preconceived prejudice or suspicion ... When the process of decision-making need not be and is not disclosed, there will be a discernible breach of such a duty if a decision of fact is unsupported by probative material. When the process of decision-making is disclosed, there will be a discernible breach of duty if findings off act upon which a decision is based are unsupported by probative material and if inferences of act upon which such a decision is based cannot reasonably be drawn from such findings off act. Breach of a duty to act judicially constitutes an error of law which will vitiate the decision.”
[91] Additionally, it was submitted that the Full Bench of the Australian Industrial Relations Court in Hail Creek Coal Pty Ltd v Constructions, Forestry, Mining and Energy Union 18 at [48] where it was relevantly stated:
a. ‘While the Commission is not bound by the rules of evidence that does not mean that those rules are irrelevant’; and
b. ‘The rules of evidence provide a method of enquiry formulated to elicit truth and to prevent error. They cannot be set aside in favour of a course of inquiry which necessarily advantages one party and necessarily disadvantages the opposing party (R. v War Pensions Entitlement Appeal Tribunal: ex parte Bott [1933] 50 CLR 228 Evatt J. at 256 (dissenting)). The common law requirement that the Commission must not in its reception of evidence deny natural justice to any of the parties acts as a powerful control over a tribunal which is not bound by the rules of evidence’
[92] Ms Davenport submitted that this principal was confirmed by the Commission in Wong v Taitung Australia Pty Ltd 19 at [31]. Additionally it was submitted that in Rodriguez v Telstra Corporation Limited20where it was held:
“[25] The Tribunal is not bound by the rules of evidence (s 33 Administrative Appeals Tribunal Act 1975 (Cth)) and may inform itself in such a manner as it thinks appropriate. This does not mean that the rules of evidence are to be ignored.”
[93] Ms Davenport was submitted that the case currently before the commission is one where physical evidence, and not just oral or viva voce evidence, is required in order to properly make a determination as regards the factual matrix of the relevant circumstances of the Applicant.
[94] Ms Davenport submitted that the Applicant is asking the Commission and the Respondent to take the word of one of its officers while at the same time, resting on the provision of independent physical evidence, and preventing the owners of that independent evidence to be cross examined.
[95] Ms Davenport further submitted that the Applicant has not led any evidence at all, nor any forensic evidence, or in any way even quantified its financial position in these proceedings. It was submitted that documents from both the Applicant and any related entities to prove the Applicant cannot pay should have been provided to substantiate the basis for the Applicant have not been provided. These could include:
• bank statements;
• audited profit and loss statement(s) and details;
• audited balance sheet(s);
• attempts to get a loan to fund entitlements;
• cash flow forecasts;
• cash at hand;
• liquidatable assets;
• dealings with an insolvency practitioner;
• evidence from the Applicant’s company accountant, or other such person in control of the finances of the Applicant, and
• other records of truth;
[96] Ms Davenport submitted that the Applicant’s opportunity to prove such evidence has passed, having been directed to provide such information in accordance with the 20 May 2021 directions order.
[97] Ms Davenport submitted that the Applicant, although self-represented at the time of these submissions, has been provided sufficient opportunity to comply with the Commission’s Directions and has further had an opportunity to seek an extension of time should he wish to provide additional materials but failed to do so.
[98] Ms Davenport submitted that the Applicant has also expressed why it will not provide such evidence, and has subsequently refused to provide such evidence, and has therefore rested on its right to discharge its burden. The Applicant has demonstrated that it has prioritised its desire for secrecy of its confidential information and has asked the Commission and the Respondent to take its word in the quest to deny workers their fundamental minimum legal rights.
[99] Ms Davenport submitted that the Applicant, as to why it cannot pay is, in essence, appearing to be enlivening section 3(g) of the Act, asking the Commission to find a special circumstance as a medium sized business, and doing so in favour of section 3(b) of the Act of ‘ensuring a guarantee safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders’.
[100] In the absence of independent, or even documentary, evidence being provided, Ms Davenport urged the Commission to maintain object 3(b) of the Act in priority of object 3(g) of the Act, and that the redundancy payment must be paid.
[101] Ms Davenport submitted that Mr Brown is the 100% shareholder, and the sole director, of the Applicant. It was submitted that the Applicant has wholly failed to discharge its burden and the Application should be dismissed. Ms Davenport submitted that the application is so lacking in substance and misconceived that it gives rise to the question of costs under section 570(2)(b) of the Act, in that the Applicant’s unreasonable act or omission caused the other party to incur the costs.
[102] It was submitted that the law requires an ‘exceptional circumstance’ to reduce the amount of a redundancy payment owed to an Employee. Ms Davenport submits that no exceptional circumstances have been provided.
[103] Further, no evidence has been provided of the Applicant’s ‘incapacity to pay’ that the Commission will be able to have regard to in these circumstances to ground a finding that the redundancy payment of the Respondent should be reduced by any amount, up to an including 100% of the full amount owed.
[104] Ms Davenport submits that any decision to reduce the Redundancy payment of an employment is an exercise of discretion of the Commission. In exercise such discretion, the Commission is empowered to inform itself on any matter it considers appropriate.
[105] Ms Davenport submits that factors relevant to such an exercise of discretion include:
a. the delay in the payment of the redundancy after the redundancy was effected;
b. the delay in advising the Respondent that there was never an intention to pay any redundancy payment, and make an Application to the Fair Work Commission to reduce such payment to zero ;
c. the refusal to provide evidence substantiating the financial position (including the unusual position of not including a specific paragraph in his witness statement, let alone filing documents attached to his witness statement) to justify the reduction of any owed redundancy payment to the Respondent;
d. the refusal to comply with directions of the Fair Work Commission in relation to providing:
i. the unredacted Form 45 that initiated these proceedings; and
ii. the supporting documentation in regards to the Respondent and other Respondent’s in this matter; and
e. has been obstructionist in its disclosure of information relevant to these proceedings.
[106] In circumstances where relevant information has not been disclosed, Ms Davenport submitted that that the Commission should draw an adverse inference about the lack of such information and disclosure of same. Separately, the exercise of such discretion to reduce or remove the right of the Respondent to the payment of redundancy has significant flow on effects.
[107] It was submitted that where concerns exist that the payment of such redundancy payment has the potential to have the Applicant company become insolvent, such insolvency will enliven ancillary rights of the Respondents to the Fair Entitlements Guarantee.
[108] Ms Davenport also referred to the decision of the Commission in Application by Company X at [41] where Deputy President Millhouse stated:
“Further, in the event that the applicant’s continued trade cannot be sustained noting the broad and unparticularised submission as to the possibility of future financial strain, the former employees ought not be prevented by order of the Commission from recovering their redundancy amounts via the Fair Entitlements Guarantee scheme”
[109] In circumstances where such an order being made will extinguish all rights of recovery for the Respondents, Ms Davenport submitted that the Commission should exercise its discretion in the current circumstances and refrain from reducing the redundancy entitlement owed to the Respondent.
[110] Ms Davenport submitted that the Applicant, and Mr Brown as its operative and controlling mind, have presented the Applicant’s case, (however unorthodox, unparticularised and unevidenced) in a manner that supports her respectful submission that the exercise of the discretion would also be inconsistent with the objects of the Act.
CONCLUSION
[111] The Applicant has elected not to file any documentary evidence to support its claim that it does not have the capacity to pay the redundancy amounts owing to the 14 Respondents. The only evidence before the Commission as to the financial position of the Applicant is the witness statement of Mr Brown, and his brief oral evidence.
[112] Prior to the hearing on 21 June the Applicant sought to have its financial position made available to the Commission as currently constituted, only if the Commission would not allow the Respondents access to that information. The Commission directed the Applicant to the powers available to the Commission under s.593, and s.594 of the Act but made clear the Commission could not proceed on the basis proposed by the Applicant that the Respondents be denied procedural fairness.
[113] The Applicant consequently elected not to file any documentary financial records to support its case. It appears from the evidence of Mr Brown that the reason for this decision was twofold. Firstly, the Applicant’s concern that commercially sensitive information could be shared beyond the Respondents if relied on in the proceedings, despite the Commission drawing to the attention of the Applicant the powers available under s.593 and s.594. Secondly, the Applicant was concerned that an examination of the solvency of the business during the proceedings may give rise to a risk of self-incrimination. It has been a deliberate and conscious decision of the Applicant to adopt this course. The consequence of that choice is that there is that while Mr Brown was given evidence that the Applicant’s financial position is dire, there is insufficient evidence for the Commission to be satisfied of the true financial position of the Applicant, and its capacity or otherwise to pay redundancy amounts, and the evidence falls short of that which could satisfy the Commission that the Applicant is unable to pay the redundancies to the requisite standard of proof. On that basis I am not prepared to exercise power under s.120(2) of the Act.
[114] Even in the event that I was persuaded that the evidence of Mr Brown is sufficient without any supporting documentary evidence, to establish that the Applicant cannot pay the redundancy amounts owed, the Applicant has also failed to make a compelling case that if the application were granted it is likely to have a long-term beneficial effect for the few remaining staff.
[115] The Applicant has said it anticipates zero tuition revenue for the 2021/22 financial year and is closing its last remaining campus. It seems from the Applicant’s own case despite the paucity of evidence, that it is quite possible the remaining staff may well be terminated regardless of the outcome of this application. It is notable that the number of persons who would be denied their considerable redundancy entitlements if the application were to succeed, is now comfortably higher than the handful of remaining staff.
[116] I am also persuaded by the submission that if the Application was granted and the Applicant’s continued trade cannot be sustained and it is placed into liquidation, the Respondents will be prevented from recovering their entitlements via the Fair Entitlements Guarantee Scheme. For similar reasons to those set out in the decision of Deputy President Millhouse in Application by Company X, in this case I would not exercise discretion under s.120 even if I could be satisfied that the Applicant was unable to pay the redundancy payments.
[117] For the reasons set out above the application is dismissed.
COMMISSIONER
Appearances:
Mr R. Brown appearing for the Applicant.
Mr J. Farren of Farren McRae Workplace Lawyers and Consultants appearing for Ms R. Sucasas.
Ms L Montero Maldonado appearing on her own behalf.
Ms J Kim appearing on her own behalf.
Ms H. Kikuchi appearing on her own behalf.
Mr M. Heffernan and Mr S. Dryley-Collins of Supportah Australia Pty Limited appearing for Ms K. Davenport.
Ms R. Hungerford appearing on her own behalf.
Mr V. Corpuz appearing on his own behalf.
Ms J. Jin appearing on her own behalf.
Ms X. Zhang appearing on her own behalf.
Mr L. Liu appearing on his own behalf.
Ms V. Kudeken appearing on her own behalf.
Ms N. Ovalles Nugent appearing on her own behalf.
Hearing details:
2021,
Brisbane:
June 21
Printed by authority of the Commonwealth Government Printer
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1 Exhibit 1.
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9 Exhibit 9.
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11 Exhibit 11.
12 Exhibit 12.
13 [2021] FWC 2277 (unreported, Lake DP, 23 April 2021).
14 Baywood Products Pty Ltd v Mr Mervyn Inall[2010] FWA 9303 at [34], cited in Application by Company X [2020] FWC 5047 at [30].
15 (1938) 60 CLR 336.
16 [2020] FWC 5047.
17 [1990] HCA 3320.
18 (2004) 143 IR 354; [2004] AIRC 670.
19 [2016] FWC 7982.
20 [2002] FCA 30.
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