David Klemm v Penrice Soda Products Pty Ltd (in liquidation)

[2016] FWC 3170

[2016] FWC 3170

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

David Klemm
v
Penrice Soda Products Pty Ltd (in liquidation)
(U2014/8470)

COMMISSIONER HAMPTON ADELAIDE, 10 JUNE 2016

Application for relief from unfair dismissal – company in liquidation – whether creditors’ voluntary winding up – whether permission of a Court required in these circumstances – operation of s.500(2) and s.471B of the Corporations Act 2001 considered – permission of Court required – application stayed pending advice that permission being sought – otherwise application to be dismissed.

1. The circumstances of this application

[1] In July 2014, Mr David Klemm filed an application under s.394 of the Fair Work Act 2009 (the FW Act) seeking a remedy in relation to an alleged unfair dismissal. Mr Klemm had been employed by the respondent in these proceedings, Penrice Soda Products Pty Ltd (Penrice) for some six years prior to his dismissal earlier that month. The dismissal was based upon alleged misconduct associated with the applicant’s operation of machinery.

[2] Penrice is in liquidation. In that light, the appointed firm, McGrathNicol, stands in the shoes of the employer. References to Penrice or the employer in this decision include the actions taken by representatives of that firm. The division of the business in which Mr Klemm was employed was sold to an unrelated third party in late July 2014.

[3] At a pre-arbitration directions conference before me in mid-December 2014, the parties advised that the application had been resolved “in principle” and that they would execute a deed setting out the terms of settlement leading to the applicant filing a notice of discontinuance. This result was recorded within the Commission’s case management system.

[4] Despite various attempts by the Commission to follow-up with the applicant, no notice of discontinuance was provided and no request was made by any of the parties to have the application relisted or dealt with. In April 2015, the file was administratively closed by the Commission.

[5] In March 2016, an application was made to the Commission on behalf of Mr Klemm seeking that this matter be set down for arbitration. Mr Klemm contends that the unfair dismissal application has not been resolved and the matter has not been discontinued or withdrawn. In that light, he contends that it is appropriate that the application now be determined by the Commission.

[6] Penrice accepts, correctly in my view, that in the normal course it may not have been necessary for the applicant to seek to reopen the matter as it was not formally settled by the parties or dismissed by the Commission. 1 However, it contends that the unfair dismissal application should be dismissed for want of prosecution and what it described as an abuse of process. To that end, Penrice has made an application under s.587 of the FW Act to dismiss Mr Klemm’s unfair dismissal application.

[7] Having conducted a further directions conference of the parties to deal with Penrice’s application, it was agreed that the s.587 application should be determined on the papers.

[8] However, on 27 May 2016, having reviewed the submissions filed, the Commission raised a further jurisdictional issue that had not been dealt with by either party to that point. This arose from the apparent status of Penrice being in liquidation on the basis of a creditors’ special resolution being passed under s.491 of the Corporations Act 2001 (Cth) (the Corporations Act) that the company be wound up voluntarily. I will for convenience describe this as being a creditors’ voluntary winding up. The issue raised with the parties also included the potential implications of s.500(2) of the Corporations Act.

[9] Section 500 of the Corporations Act provides as follows:

“Execution and civil proceedings

(1) Any attachment, sequestration, distress or execution put in force against the property of the company after the passing of the resolution for voluntary winding up is void.

(2) After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.

(3) The Court may require any contributory, trustee, receiver, banker, agent, officer or employee of the company to pay, deliver, convey, surrender or transfer forthwith or within such time as the Court directs to the liquidator any money, property of the company or books in his, her or its hands to which the company is prima facie entitled.”

[10] In raising this matter with the parties, the Commission noted that in Shannon Craddock v James Mawhinney; Digital Personnel Pty Ltd; Reeltime Media Limited[2015] FWC 3904, (Craddock) Sams DP took the view that s.500(2) of the Corporations Actapplies to a creditors’ voluntary winding up under a special resolution passed under s.491 (but not to a members’ voluntary winding up). The learned Deputy President also took the view that in the circumstances of a creditors’ voluntary winding up, s.500(2) precludes the Commission from proceeding with an unfair dismissal matter in the absence of a Court order.

[11] Both parties have now lodged submissions dealing with the potential impact of the Corporations Act upon this matter. For reasons which will become clear, I have determined that issue rather than deal with Penrice’s original s.587 application to dismiss the unfair dismissal matter.

2. Mr Klemm’s submissions in relation to the power to proceed with the unfair dismissal application

[12] Mr Klemm is represented, with permission, by Mr Wright and contends that the definitions for the word ‘court’ and ‘Court’, as defined in s.9 of the Corporations Act - which further directs the reader to s.58AA, are different. He contends that the expression ‘court’ encapsulates all courts which have judicial power and the expression ‘Courts’ is exhaustive as it specifically lists the courts which apply to the definition. He contends that the Commission is not in the latter list as it does not exercise judicial power – it exercises administrative powers of the Commonwealth.

[13] He further acknowledged that the Commission cannot provide leave to the applicant to proceed with proceedings in a Court because it does not have jurisdiction to do so. However, Mr Klemm contends that he does not need leave as the current proceedings are not proceeding in a court.

[14] That proposition is based upon the contention that s.500(2) of the Corporations Act must be read in conjunction with s.471B(a), which states:

“While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:

(a)  a proceeding in a court against the company or in relation to property of the company …”

[15] Mr Klemm concludes that due to the different definitions, the word ‘court’ in s.471B does not include the Commission.

[16] He also contends that s.500(2) is only to be used as an exception to the rule that an unfair dismissal application can proceed in the Commission if a declaration has been made by ‘a court’ or ‘Court’, or by a liquidator. This, he suggests, is consistent with the approach taken in Smith and Ors v Silverwood and Beck Pty Ltd (in liquidation) 2 (Smith).

[17] Mr Klemm then advances a number of scenarios based on whether, what he refers to as a “declaration made by a ‘court’ or ‘Court’ or liquidator”, has been made. It is not immediately apparent what is meant by a ‘declaration’, however I have taken the reference to be to a potential declaration of solvency that may be made by the directors under s.494 of the Corporations Act. In any event, Mr Klemm contends that if a declaration has been made by a Court or the Liquidator, Penrice cannot rely on s.500(2) of the Corporations Act as an exception. If a declaration has not been made, he contends that Craddock is relevant but only to explain the differentiation between a members’ and creditors’ voluntary winding up of the company.

[18] I also understand that Mr Klemm contends that if the liquidation was a members’ voluntary winding up, or a creditors’ voluntary winding up without a declaration, the Commission has jurisdiction to proceed.

[19] Mr Klemm also contends that Craddock should not be followed on the basis that it failed to consider the implications of s.471B of the Corporations Act.

3. Penrice’s submissions in relation to the power to proceed with the unfair dismissal application

[20] Penrice is represented, with permission, by Mr Luke and it has confirmed that voluntary administration of the company commenced 11 April 2014. It further confirmed that the employer was wound up by a special resolution of its creditors effective on 31 July 2014.

[21] The special resolution of Penrice’s creditors was caused by a creditor’s meeting being convened pursuant to s.439A of the Corporations Act. At the meeting, and pursuant to s.439C(c) of the Corporations Act, the creditors resolved that the company be wound up. Section 446A(2) of the Corporations Act provides that if a resolution is made pursuant to s.439C(c), the company is deemed to have passed a special resolution pursuant to s.491 of the Corporations Act that the company be wound up.

[22] Penrice contends that the applicant is unable to bring (or continue) any civil proceedings against it, due to its status as a company in liquidation.

[23] Its submits that s.500(2) raises two issues:

• whether an application for an unfair dismissal remedy can be described as an ‘action’ or ‘civil proceeding’ under the Corporations Act; and



• whether the Commission may be described as a ‘Court’ capable of granting leave as required by s.500(2).

[24] Penrice relies on the decision of Johns C in Silalahi v CMI Industrial (Forge) 3 which found that an application under s.394 of the FW Act falls within the meaning of civil proceedings under s.500(2). Commissioner Johns relied on the judgment of Chief Justice King in Alliance Petroleum Australia (NL) v Australia Gaslight Co4 who said:

“arbitration is clearly recognised by the statute as a method of resolving legal disputes alternative to litigation in the courts. I think that in the ordinary use of language such a procedure would be included in the description ‘civil proceedings’.” 5

[25] Commissioner Johns consequently found that it was clear that an unfair dismissal application will, unless settled or discontinued, result in arbitration and further that an unfair dismissal arbitration would fall within the meaning of ‘civil proceeding’ in s.500(2) of the Corporations Act.

[26] In relation to the issue of whether the Commission may be described as a ‘Court’ capable of granting leave, Penrice contends that the definition of ‘Court’ does not include the Commission. It relies on the decision of McKenna C in Lawler v ABC Developmental Learning Centres Pty Ltd (Receivers and Managers Appointed) (Administrators Appointed) 6 where the Commissioner found that there was no ambiguity in the words of s.58AA of the Corporations Act and the word ‘court’ in that context could not be construed to include the industrial tribunal.
[27] On the basis of the above contentions, Penrice contends that there is no evidence before the Commission that the required leave of a Court has been sought by the applicant in order to bring the proceedings against Penrice, and thus the Commission is precluded from hearing the applicant’s civil proceeding claim in accordance with the barring provision under s.500(2) of the Corporations Act.

4. Can the unfair dismissal application proceed against Penrice without leave of the Court?

[28] I am satisfied that Penrice is in liquidation and that this has been the result of a creditors’ voluntary winding up so as to enliven s.500(2) of the Corporations Act.

[29] Section 500(2), in effect, requires that after the passing of the relevant voluntary winding up special resolution, leave of the Court is required to proceed with or commence an action or other civil proceedings against the company. If leave is given, the Court may impose terms that will govern the extent of leave and other matters.

[30] For reasons essentially advanced by both Mr Klemm and Penrice, the Commission is not a Court that is capable of giving leave under s.500 for a relevant action to be made or continued.

[31] An unfair dismissal application is a civil proceeding for reasons advanced by Penrice.

[32] This means that unless the implications of s.471B of the Corporations Act, or some other provision, operate to limit the impact of s.500(2), leave of a Court will be required in the circumstances of this matter.

[33] In effect, Mr Klemm contends that the Commission should follow the Full Bench of the Australian Industrial Relations Commission (AIRC) in Smith. The effect of which is that the AIRC was not a “court” for present purposes and that proceedings before a court in that context did not include matters before the Commission.

[34] In Smith, the Full Bench considered whether the AIRC had jurisdiction to deal with an unfair dismissal application in circumstances where the respondent employer was in liquidation and the applicant employee had not obtained the leave of the relevant Court to commence or proceed with the application. The Full Bench considered the effect of s.471B of the Corporations Act, which provided as follows:

“Stay of proceedings and suspension of enforcement process

While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:

(a) a proceeding in a court against the company or in relation to property of the company; or
(b) enforcement process in relation to such property;

except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.”

[35] The Full Bench in Smith concluded that s.471B did not apply to the commencement or the continuation of proceedings in the Commission because the term ‘court’ in s.471B should be given its defined meaning and a contrary intention did not appear. 7 Without attempting to canvass the full reasons for that conclusion, the Full Bench reviewed the various contrary decisions and decided that the nature and jurisdiction of the Commission, including the broad public interest and policy considerations applying to its functions, were significantly different to that of a court.8 Further, the Full Bench observed that the Legislature could have included the AIRC within the scope of a ‘court’ and had not done so.9 Importantly, Smith was dealing only with s.471B and did not consider the effect of s.500 of the Corporations Act, which is written in different terms.

[36] Further, s.471B is contained in Part 5.4B - Division 1A of the Corporations Act, which is dealing with the effect of a winding up order of the Court. The language and context of s.471B confirms that the section applies only to a company being wound up in insolvency, 10 by a Court (this provides for situations where the company is wound up on grounds other than insolvency),11 or if a provisional liquidator of a company is acting.12 Based on the Minutes of the Meetings of Creditors dated 31 July 2014,13 Penrice was considered as insolvent and thus a special resolution was passed to wind up the company. This form of liquidation does not involve the type of winding up order or circumstances contemplated by s.471B of the Corporations Act.

[37] Although the decision of Richards SDP in Clifford v S & N Civil Constructions Pty Ltd 14 dealt with a number of jurisdictional objections, one of which was whether s.440D of the Corporations Act precluded the Commission from proceeding, it sets out a succinct comparison between ss.440D, 471B and 500 of the Corporations Act.

[38] For comparative purposes, s.440D of the Corporations Act provides as follows:

“Stay of proceedings

(1) During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:

(a)  with the administrator's written consent; or

(b)  with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

(2)  Subsection (1) does not apply to:

(a)  a criminal proceeding; or

(b)  a prescribed proceeding.

[39] Sections 471B and 500 have been set out earlier in this decision.

[40] The Senior Deputy President set out the following observations:

“[21] Section 500 of the Corporations Act provides a complete bar to the commencement of any action or other civil proceedings proceeding in respect of a Company which has entered into voluntary winding up.

[22] Both ss.471B and 500 of the Corporations Act relate to circumstances in which a Company is being wound up.

[23] The difference between the provisions is that s.500 of the Corporations Act applies when a Company is being wound up voluntarily, and s.471 of the Corporations Act applies when a Company is being wound up involuntarily, by a court initiated application or otherwise.

[24] Section 440D of the Corporations Act, by contrast, deals with the circumstances in which a Company has moved into administration voluntarily, which provides for a more gradual process of considering the prospects of the business before moving to any future resolution of the Company's affairs through a DOCA or the handing back of the business to the original Director(s). Of course, a DOCA may result in the Company being wound up, in which case s.500 of the Corporations Act would have effect from the date the DOCA was executed or took effect.”

[41] He also made the following observation in passing:

“[33] … it appears unusual that a court may not supervise an administrative tribunal in respect of voluntary administration and (particularly) a compulsory winding up, but may in relation to a voluntary winding up or liquidation, given the issues around the surety of the assets for the creditors that arise.”

[42] Despite that observation, the Senior Deputy President followed the decision in Smith with respect to the operation of s.440D of the Corporations Act. 15

[43] As outlined earlier, in Craddock, Sams DP found as follows:

“[28] … … I note that s 500(2) of the Corporations Act 2001 is expressed as follows:

'(2) After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.'

This applies to a creditors' voluntary winding up, but not to a members' voluntary winding up; See: Catto and Others v Hampton Australia (In Liq) and Another (1998) 29 ACSR 225; and Awada v Linknarf Ltd (In Liq) (2002) 55 NSWLR 745. … …”

[44] It is apparent that s.440D, 471B and 500 of the Corporations Act all relate to a statutory stay of proceedings. The provisions are enlivened once a company enters into voluntary administration or liquidation (whether voluntary or involuntary). Although similar, they each apply to different circumstances and operate differently in terms of the extent to which they impact upon the ability of the Commission to proceed with hearing an unfair dismissal application (or other civil proceeding) without Court approval. Further, s.440D can be compared to s.471B, in that they operate to impact upon proceedings before a court (and not the Commission). Whereas s.500 has a broader application that includes civil proceedings more generally.

[45] There, is however, some tension between the decisions outlined above in terms of whether s.500(2) applies only to a creditor’s voluntary winding up (as in Craddock) or to any voluntary winding up (as in Clifford). For present purposes, it is sufficient for me to find that s.500(2) applies at least to a creditors’ voluntary winding up of the kind evident here. Section 500 is under Part 5.5 of the Corporations Act, which deals with voluntary winding up, but more specifically is contained within Division 3 of that Part which sets out provisions dealing with creditors’ voluntary winding up.

[46] Further, for reasons outlined earlier, s.471B of the Corporations Act does not operate to remove or reduce the relevant requirement under s.500(2) for leave of the Court in the circumstances of a creditors’ voluntary winding up of the nature evident here. That is, s.471B is directed at a different circumstance.

[47] I note that the unfair dismissal application was filed with the Commission prior to the liquidation. Given the import of s.500(2) 16 and other provisions of the Corporations Act discussed in this decision,17 permission was not required to make the application. However, permission is required for that application to be “proceeded with”.

5. Conclusions

[48] In the circumstances of the creditors’ voluntary winding as in this case, s.500(2) precludes the Commission from proceeding with an unfair dismissal matter in the absence of a Court granting leave for the action to continue.

[49] Penrice has been the subject of a relevant creditors’ voluntary winding up and there is no indication that leave of the Court has been granted or even sought.

[50] For reasons set out in this decision, the Commission is precluded from determining this application, or from taking further action, in the absence of a Court order granting leave.

[51] In these circumstances, it is also not appropriate for the Commission to determine Penrice’s application to dismiss the unfair dismissal application.

[52] The unfair dismissal application in this matter will be stayed. In the event that Mr Klemm obtains a Court order permitting his claim against Penrice to proceed, I will then, subject to any conditions imposed by the Court, determine Penrice’s s.587 dismissal application.

[53] In the event that Mr Klemm does not provide evidence to the Commission that he has made an application seeking a Court order within the next 30 days, the unfair dismissal application will be dismissed without further hearing or notice to the parties.

[54] General liberty to apply is also granted.

COMMISSIONER

Appearances:

A Wright of WK Lawyers, with permission, for Mr David Klemm.

K Luke of Thomson Geer, with permission, for Penrice Soda Products Pty Ltd (in liquidation).

Telephone Conference details:

2014

September 29, December 4, 12.

2016

March 22.

Final written submissions:

Applicant

2016

May 5, June 6.

Respondent

2016

April 21, May 19, June 6.

 1   See Diane Miles v Hansen Yuncken Pty Ltd & Leighton Contractors Pty Ltd T/A HYLC Joint Venture[2013] FWC 1394.

 2 (2006) 142 IR 137.

 3   [2012] FWA 7275.

 4 (1983) 48 ALR 69, 73.

 5   Ibid.

 6   [2010] FWA 7679.

 7 (2006) 142 IR 137 at [21].

 8   Ibid at [18] and [19].

 9 Ibid at [20].

 10   See Corporations Act 2001 (Cth) Part 5.4, Divisions 1 and 4.

 11   See Corporations Act 2001 (Cth) Part 5.4A.

 12   See Corporations Act 2001 (Cth) s.474(2).

 13   Provided by Penrice as part of its written submissions.

 14   [2013] FWC 235.

 15 Ibid at Para [34].

 16 Section 500(2) applies after the winding up event.

 17   Penrice was apparently under administration at the time of the application.

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