Mi and Secretary, Department of Employment
[2016] AATA 419
•24 June 2016
Mi and Secretary, Department of Employment [2016] AATA 419 (24 June 2016)
Division
General Division
File Number(s)
2014/4774
Re
Ying Ying Mi
APPLICANT
And
Secretary, Department of Employment
RESPONDENT
DECISION
Tribunal Professor R Deutsch, Deputy President
Date 24 June 2016 Place Sydney The decision under review is affirmed
..........................[sgd]..............................................
Professor R Deutsch, Deputy President
CATCHWORDS
EMPLOYMENT - fair entitlements guarantee - entitlement to redundancy payment - whether Applicant was employed by a small business - decision affirmed
LEGISLATION
Acts Interpretation Act 2001
Corporations Act 2001 (Cth) ss 9, 46, 47, 50, 50AA, 50AAA, 437A, 437C, 442A,
Fair Entitlements Guarantee Act 2012 (Cth) ss 5, 6, 35Fair Work Act 2009 (Cth) ss 12, 23, 119, 121
CASES
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27
Burbank Trading Pty Ltd v Allmere Pty Ltd (2009) 22 VR 633
Hill v David Hill Electrical Discounts Pty Ltd (in liq) (2001) 37 ACSR 617
Lister v Forth Dry Dock and Engineering Co Ltd (In Receivership) [1990] 1 AC 546Krejci as liquidator of the Eaton Electrical Service (2006) 58 ACSR 403
SECONDARY MATERIALS
Oxford English Dictionary
REASONS FOR DECISION
Professor R Deutsch, Deputy President
24 June 2016
INTRODUCTION
The sole issue in this case is whether the Applicant is eligible to receive an advance under the Fair Entitlements Guarantee Act 2012 (Cth) (‘the FEG Act’) in respect of a redundancy pay entitlement.
The Respondent contends that the Applicant is not eligible because the Applicant is not entitled to redundancy pay under the governing instrument for her employment with Wilcom Auto Tuft Pty Ltd (‘Auto Tuft’).
The Applicant contends that she is so entitled.
THE FACTUAL BACKGROUND
The facts in this case follow a simple chronology which is as follows:
(a)15 February 2001 - the Applicant commenced employment with a company called Wilcom International Pty Ltd (‘International’);
(b)20 June 2012 - International entered into an asset sale agreement with Auto Tuft pursuant to which Auto Tuft acquired certain specific business lines and assets owned by International;
(c)1 November 2012 - in accordance with its obligations under the asset sale agreement, Auto Tuft offered the Applicant a contract of employment. That contract of employment stipulated that the Applicant’s accrued leave business balances would be transferred to Auto Tuft and that her period of service at International would be included in calculating her future leave entitlements at Auto Tuft;
(d)13 November 2012 - the Applicant accepted the contract of employment;
(e)27 September 2013 - Auto Tuft went into administration;
(f)4 October 2013 - the Applicant was notified of the termination of her employment and her employment was terminated on the same date;
(g)4 November 2013 - Auto Tuft went into liquidation and the Applicant lodged a claim for assistance under the FEG Act;
(h)13 March 2014 - a delegate of the Respondent decided pursuant to s 15 (1) of the FEG Act, that the Applicant:
·was entitled to an advance in the amount of $19,671.76 (before tax) in respect of annual leave and long service leave entitlements and payment in lieu of notice; and
·did not have a redundancy pay entitlement pursuant to s 38 of the FEG Act;
(i)2 April 2014 - the Applicant sought internal review of the delegates decision of 13 March 2014 that she did not have a redundancy pay entitlement;
(j)3 September 2014 - the delegate of the Respondent affirmed the decision under review pursuant to s 39 of the FEG Act;
(k)16 September 2014 - the Applicant applied to this Tribunal for review of the decision of the Respondent’s delegate dated 3 September 2014 pursuant to s 40 of the FEG Act.
WHAT IS THE APPLICABLE LAW?
Section 6(5) of the FEG Act defines a person's redundancy pay entitlement as
the amount of redundancy pay the person is entitled to under the governing instrument from the employer for termination of the employment.
The term 'governing instrument' is defined in s 5 of the FEG Act as follows:
Governing instrument for employment means any of the following that governs the employment:
(a) a written law of the Commonwealth, a State or a Territory;
(b) an award, determination or order that is made or recorded in writing;
(c) a written instrument; and
(d) an agreement (whether or not a contract).
In this case the following conclusions appear to be agreed between the parties:
·the Applicant's contract of employment with Auto Tuft did not include any provision for a redundancy payment;
·the Applicant's employment with Auto Tuft was not covered by an award, enterprise agreement, written determination or order; and
·the relevant governing instrument for the purposes of determining whether the Applicant has a redundancy entitlement is the National Employment Standards (the Standards) as contained in the Fair Work Act 2009 (Cth) (‘the Fair Work Act’).
Section 119 of the Fair Work Act sets out the circumstances in which an employee is entitled to a redundancy payment upon termination of their employment and the amount of the payment.
However, s 121(1) of the Fair Work Act provides:
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.' (Emphasis added)
The term 'small business employer' is defined under s 23 of the Fair Work Act as follows:
(1) A national system employer is a small business employer at a particular time if the employer employs fewer than 15 employees at that time
(2) For the purpose of calculating the number of employees employed by the employer at a particular time:
(a) subject to paragraph (b), all employees employed by the employer at that time are to be counted; and
(b) a casual employee is not to be counted unless, at that time, he or she has been employed by the employer on a regular and systematic basis.
(3) For the purpose of calculating the number of employees employed by the employer at a particular time, associated entities are to be taken by one entity
(4) To avoid doubt, in determining whether a national system employer is a small business employer at a particular time in relation to the dismissal of an employee, or termination of an employee's employment, the employees that are to be counted include (subject to paragraph (2)(b)):
(a) the employee who is being dismissed or whose employment is being terminated; and
(b) any other employee of the employer who is also being dismissed or whose employment is also being terminated.
This case therefore turns on the application of s 121(1) and in particular the meaning of small business employer in circumstances where administrators have been appointed to Auto Tuft.
WHAT IS THE RELEVANT TIME FOR THE PURPOSE OF SECTION 121(1) OF THE FAIR WORK ACT?
The Respondent asserts that 4 October 2013 is the relevant time for the purposes of s 121 as that date (or more accurately sometime on that date) is both the time that is:
·'immediately before the time of the termination'; and
·'the time when the Applicant was given the notice'.
The Respondent’s legal analysis on this point is to the following effect.
What exactly is meant by ‘immediately before the time of the termination’ and ‘the time when the Applicant was given the notice’ requires some statutory interpretation.
It is well established that the process of statutory interpretation involves beginning with the words of the statute and then considering those words in light of their context and the purpose of the provision to be interpreted. Thus in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at [47] the High Court commented that:
This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy.
The two relevant expressions under consideration here are defined in neither the Fair Work Act nor the Acts Interpretation Act 2001 (Cth). Further, these expressions have not been judicially considered in the context of section 121(1). Accordingly, the relevant expressions should be attributed their ordinary meaning as best as that can be determined.
First, it is necessary to consider the word 'immediately' which is defined as follows in the Oxford English Dictionary:
(1) Without intermediary, intervening agency, or medium; by direct agency; in direct or proximate connection or relation; so as to concern, interest, or affect directly, or intimately; directly.
(2) With no person, thing, or distance, intervening in time, space, order, or succession; next or just (preceding or following, before or after); closely; proximately; directly;
(3) Without any delay or lapse of time; instantly, directly, straightway; at once.
This definition is consistent with Lord Oliver's formulation of the ordinary meaning of the expression 'immediately before' in Litster v Forth Dry Dock and Engineering Co Ltd (In Receivership) [1990] 1 AC 546 at 569:
The expression 'immediately before' is one which takes its meaning from its context, but in its ordinary signification it involves the notion that there is, between two relevant events, no intervening space, lapse of time or event of significance. (Emphasis added)
This formulation has been quoted by a number of Australian authorities most notable among them being: Macquarie Health Corp v Commissioner of Taxation [1999] FCA 1819 at [100]; Australian Pipeline Limited as Responsible Entity for the Australian Pipeline Trust v Commissioner of Taxation [2013] FCA 1372 at [61] and Financial Synergy Holdings Pty Ltd v Commissioner of Taxation [2015] FCA 53 at [19].
Secondly, the expression 'at the time when the person was given notice', on its plain words, clearly indicates a specified point in time at which the notice of termination is given.
The Applicant puts her argument on this point differently. She says by way of “Final Submission” that:
We note the small business employer test under the Fair Work Act is to be under taken immediately before the time of the termination (or notice of the termination if this happened first). For this reason, the time for determining whether a company is a small business employer was the time immediately before the appointment of the Administrator on 27 September 2013.
With respect, the second sentence in this paragraph does not follow from the first sentence in that the termination and the notice of termination of the Applicant’s employment occurred on 4 October 2013. The time immediately before the earlier of those two times cannot possibly, on any interpretation, be ‘immediately before the appointment of the Administrator on 27 September 2013’.
With some regret, I conclude that it is not open to me sitting as the decision-maker in this case to insert a different test in s 121(1) for determining the time at which an employer was a small business employer. For example, it is not open to me to insert a longer or different date, such as immediately before the time at which the employer company is placed into administration/liquidation. Sitting as the Tribunal, I am required to apply the unambiguous language chosen by Parliament and that language drives the conclusion that the relevant date to consider in this case is 4 October 2013 being both the date of the Applicant’s termination of employment and the date of the notification to her of that termination. I am clearly not at liberty to look to an earlier date such as the date immediately prior to the commencement of the administration.
Thus, the critical conclusion is that the case turns on whether Auto Tuft was a small business employer on 4 October 2013.
WAS AUTO TUFT A SMALL BUSINESS EMPLOYER ON 4 OCTOBER 2013?
‘Small business employer’ is defined in s 23(1) of the Fair Work Act as an employer who ’employs fewer than 15 employees’ at the relevant time. For the purpose of calculating the number of employees employed by the employer, 'associated entities are taken to be one entity' (s 23(3)).
On 4 October 2013, Auto Tuft itself employed only five employees. Accordingly, unless it had one or more associated entities that employed a total of at least ten employees on that date, it is a small business employer and s 121 operates so as to exclude the Applicant from a redundancy pay entitlement.
According to the report prepared by Mr David Young (‘the Young Report’), the Insolvency Practitioner for Auto Tuft, dated 14 May 2015, Auto Tuft had only two associated entities on 4 October 2013: Quilhurst Pty Ltd and Separation Systems Pty Ltd.
According to that report, both companies were dormant, and therefore did not employ employees, as at 4 October 2013. The report forms exhibit DY5 to Mr Young's witness statement of 12 February 2015 (‘the Young Witness Statement’).
Section 35 of the FEG Act provides that, for the purposes of deciding whether a person is eligible for an advance, the Secretary may presume that information provided by the insolvency practitioner of the employer is accurate.
The Applicant contends that International was an associated entity of Auto Tuft on 4 October 2013 and together the two companies employed over ten employees on that date.
The Respondent contends that the Tribunal cannot be satisfied that International was an associated entity of Auto Tuft on that date.
WERE AUTO TUFT AND INTERNATIONAL ASSOCIATED ENTITIES ON 4 OCTOBER 2013?
Section 12 of the Fair Work Act provides that the term associated entity 'has the meaning given by section 50AAA of the Corporations Act 2001'.
According to section 50AAA of the Corporations Act 2001 (Cth) (Corporations Act), one entity (the associate) is an associated entity of another entity (the principal) if any of the following subsections are satisfied:
(2) This subsection is satisfied if the associate and the principal are related bodies corporate.
(3) This subsection is satisfied if the principal controls the associate.
(4) This subsection is satisfied if:
(a) the associate controls the principal; and
(b) the operations, resources or affairs of the principal are material to the associate.
(5) This subsection is satisfied if:
(a) the associate has a qualifying investment (see subsection (8)) in the principal; and
(b) the associate has significant influence over the principal; and
(c) the interest is material to the associate.
(6) This subsection is satisfied if:
(a) the principal has a qualifying investment (see subsection (8)) in the associate; and
(b) the principal has significant influence over the associate; and
(c) the interest is material to the principal.
(7) This subsection is satisfied if:
(a) an entity (the third entity) controls both the principal and the associate; and
(b) the operations, resources or affairs of the principal and the associate are both material to the third entity.
In summary, there are three separate possibilities that would support a conclusion that Auto Tuft and International were associated entities on 4 October 2013:
(i)they were related bodies corporate at that date - s 50AAA(2);
(ii)(there was required degree of control at that date - s 50AAA(3)(4) or (7); or
(iii)one of those two companies had a qualifying investment in the other company at that date - s 50AAA(5) or (6).
(i) Were International and Auto Tuft related bodies corporate on 4 October 2013? – section 50AAA(2)
As at 4 October 2013, International and Auto Tuft were not 'related bodies corporate' for the purpose of s 50AAA(2) for the following reasons.
The term 'related bodies corporate' is defined in section 50 of the Corporations Act as follows:
Where a body corporate is:
(a) a holding company of another body corporate; or
(b) a subsidiary of another body corporate; or
(c) a subsidiary of a holding company of another body corporate;
the first mentioned body and the other body are related to each other.
Section 9 of the Corporations Act defines a 'holding company' as, 'in relation to a body corporate, a body corporate of which the first body corporate is a subsidiary'.
A 'subsidiary', in turn, is defined under s 46 of the Corporations Act as follows:
A body corporate (in this section called the first body) is a subsidiary of another body corporate if, and only if:
(a) the other body:
(i) controls the composition of the first body's board; o
(ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or
(iii) holds more than one half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in the distribution of either profits or capital); or
(b) the first body is a subsidiary of a subsidiary of the other body.
According to s 47 of the Corporations Act, a body corporate's board is taken to be controlled by another body corporate for the purposes of s 46(a)(i) if the second body can appoint or remove all, or the majority, of the directors of the first body's board.
For the following reasons, as at 4 October 2013, International was not a holding company or a subsidiary of Auto Tuft under ss 9 and 46 of the Corporations Act and, as such, the entities were not 'related bodies corporate' under subs 50(a) or (b) of the Corporations Act:
(a)There is no evidence before the Tribunal that International or Auto Tuft controlled the composition of the other body corporate's board (thus not satisfying s 46(a)(i)).
(b)There is no evidence before the Tribunal that International or Auto Tuft was in a position to cast, or control the casting of, more than one half of the maximum number of votes that might be cast at a general meeting of the other body corporate (thus not satisfying s 46(a)(ii)).
(c)According to their ASIC company extracts, International did not directly or indirectly hold any share capital in Auto Tuft as at 4 October 2013, and vice-versa (thus not satisfying s 46(a)(iii)):
·Auto Tuft's shareholders were Ms Olivia Pongrass and Mr Robert Pongrass (whose shareholdings were 2000 and 100 shares respectively).
·International's sole shareholder was Wilcom Pty Ltd. Wilcom Pty Ltd, in turn, had two shareholders: Margit Pongrass Pty Ltd (whose sole shareholder was Ms Margit Pongrass) and Mr William Wilson.
Additionally, International and Auto Tuft were not related bodies corporate under s 50(c) of the Corporations Act. Section 50(c) requires that the bodies corporate share the same holding company. Auto Tuft had two individuals who were shareholders and therefore did not have a holding company.
The above contentions are supported by the report prepared by Mr David Young dated 14 May 2015 (Exhibit DY5 of the Young Witness Statement).
(ii) Was there the required degree of control at 4 October 2013 - sections 50AAA(3), (4) and (7)?
On 4 October 2013, there was no relationship of 'control' between Auto Tuft and International and nor did a third party control both Auto Tuft and International, for the purposes of subs 50AAA(3), (4) and (7) of the Corporations Act.
Section 50AA of the Corporations Act defines the circumstances in which an entity controls a second entity for the purposes of section 50AAA as follows:
(1) For the purposes of this Act, an entity controls a second entity if the first entity has the capacity to determine the outcome of decisions about the second entity’s financial and operating policies.
(2) In determining whether the first entity has this capacity:
(a) the practical influence the first entity can exert (rather than the rights it can enforce) is the issue to be considered; and
(b) any practice or pattern of behaviour affecting the second entity’s financial or operating policies is to be taken into account (even if it involves a breach of an agreement or a breach of trust).
(3) The first entity does not control the second entity merely because the first entity and a third entity jointly have the capacity to determine the outcome of decisions about the second entity’s financial and operating policies.
(4) If the first entity;—
(a) has the capacity to influence decisions about the second entity’s financial and operating policies; and
(b) is under a legal obligation to exercise that capacity for the benefit of someone other than the first entity’s members;
the first entity is taken not to control the second entity.
On 27 September 2013, Auto Tuft went into voluntary administration and appointed administrators on the same day. The administration did not end until 4 November 2013, when liquidators were appointed.
Accordingly, on 4 October 2013, Auto Tuft was under administration. It was therefore under the control of the administrators, to the exclusion of any other person or company.
The breadth of an administrator's legal control over a company in administration is set out in s 437A of the Corporations Act, which provides as follows:
(1) While a company is under administration, the administrator:
(a) has control of the company’s business, property and affairs; and
(b) may carry on that business and manage that property and those affairs; and
(c) may terminate or dispose of all or part of that business, and may dispose of any of that property; and
(d) may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration.' (emphasis added)
Section 442A confers upon administrators the following additional powers:
Without limiting section 437A, the administrator of a company under administration has power to do any of the following:
(a) remove from office a director of the company;
(b) appoint a person as such a director, whether to fill a vacancy or not;
(c) execute a document, bring or defend proceedings, or do anything else, in the company’s name and on its behalf;
(d) whatever else is necessary for the purposes of this Part.
Furthermore, s 437C of the Corporations Act provides that:
(1) While a company is under administration, a person (other than the administrator) cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer or provisional liquidator of the company.
(1A) Subsection (1) does not apply to the extent that the performance or exercise, or purported performance or exercise, is with the administrator’s written approval.
Thus, as a result of s 437C while a company is in administration, its officers can only perform or exercise their functions or powers with the administrators' written approval.
The effect of the appointment of administrators on a company was highlighted by the Victorian Court of Appeal in Burbank Trading Pty Ltd v Allmere Pty Ltd (2009) 22 VR 633. Justice Dodds-Streeton (with whom Weinberg JA and Williams AJA agreed) stated as follows at 650:
The appointment of a voluntary administrator effects a radical and sweeping change in the powers of ultimate decision-making in a corporation. The decision-making power is transferred from the directors (albeit they remain in office) to the voluntary administrator (s 437C), who exercises unparalleled powers to control the company's affairs (s 437A)An administrator is empowered, for example, to sell the entire undertaking of the company (s 437A(1)(c)) and to make other major decisions without recourse to, and without the prospect of restraint by, the shareholders in general meeting. The shareholders’ powers and the company’s constitution do not constrain the exercise of the administrator’s wide statutory powers. At the first meeting of creditors, the creditors’ sole powers are to appoint a committee of creditors and to replace the voluntary administrator (s 436A(1)). A committee of creditors (if appointed) cannot dictate policy, intervene or advise on the management of the company’s affairs. It may consult with the administrator and receive reports, but other than for reasonably requiring a report, a committee cannot give directions to the administrator (s 436F).
Justice Dodds-Streeton continued as follows in relation to the effect of a voluntary administration:
It is a radical change of status, which mandates the transfer of all corporate control and decision-making power to the administrators for an initially short period, which nevertheless is characteristically a prelude to long-term control by deed administrators or liquidators.
In exercising the powers of administration, the administrator must be neither influenced by nor accept directions from the officers or the previous officers of the company under administration or any other person. It is well established from cases such as Krejci as liquidator of the Eaton Electrical Service (2006) 58 ACSR 403 and Hill v David Hill Electrical Discounts Pty Ltd (in liq) (2001) 37 ACSR 617 that an administrator is in a fiduciary relationship with the company that is the subject of administration. The administrator must act objectively in a manner that gives due regard to the interests of the company as a whole, including existing and future creditors.
The directors do not have the power either under common law or under the Corporations Act to remove the administrator and bring the administration to an end. Under s 435C of the Corporations Act certain events can bring the administration to an end but that section has no relevance to the circumstances of this case.
Thus, as at 4 October 2013, Auto Tuft was legally controlled by the administrators. No other person or company, therefore, could have had control over the operation and affairs of Auto Tuft on that date for the purposes of s 50AA of the Corporations Act.
The Young Witness Statement confirms that, on 4 October 2013, Auto Tuft was under the exclusive control of the administrators as a matter of fact, and that the administrators neither took directions from nor were they influenced by any other individuals. At paragraph 6, Mr Young states that, in administering Auto Tuft:
we made all of the decisions in relation to the company's business, operations and property during this period. No other individuals - including Mr Robert Pongrass, Ms Olivia Pongrass and Mr Adrian Crouch - were involved in making such decisions, or influenced our decisions, during this period.
Ms Olivia Pongrass, the sole director of Auto Tuft immediately before it entered into administration, and Mr Adrian Crouch, the secretary of Auto Tuft at that time, ceased in their roles on the date on which Auto Tuft entered into administration.
Thus, it is clear that neither International nor any individual outside of the administrators had control over Auto Tuft on the relevant date for the purposes of s 50AA.
Accordingly, Auto Tuft and International could not have been associated entities by virtue of subs 50AAA(3), (4) or (7) of the Corporations Act.
(iii) Did Auto Tuft have a Qualifying Investment in International or International have a Qualifying Investment in Auto Tuft on 4 October 2013?- sections 50AAA(5) and (6)
Finally, on 4 October 2013, neither Auto Tuft nor International had a 'qualifying investment' in the other entity for the purposes of subs 50AAA(5)(a) and (6)(a) of the Corporations Act.
Section 50AAA(8) provides as follows:
For the purposes of this section, one entity (the first entity) has a qualifying investment in another entity (the second entity) if the first entity:
(a) has an asset that is an investment in the second entity; or
(b) has an asset that is the beneficial interest in an investment in the second entity and has control over that asset.
There is no evidence that suggests the existence of a qualifying investment by Auto Tuft or International in the other. Accordingly, the Tribunal cannot conclude that the two entities are associated by virtue of subs 50AA(5) or (6).
CONCLUSION
On 4 October 2013, Auto Tuft was a small business employer for the purposes of s 121 of the Fair Work Act because it employed only five employees and did not have any associated entities that also employed employees.
Accordingly, it is with some regret that this Tribunal must reach the conclusion that the Applicant is excluded by s 121 from an entitlement to a redundancy payment under the Fair Work Act. On that basis, the Applicant does not have a 'redundancy pay entitlement' within the meaning of s 6(5) of the FEG Act and is ineligible for an advance under the FEG Act in respect of such an entitlement.
This an unfortunate result which I doubt was an intended outcome but the law in respect of administration is clear and gives rise to the result that in this case the Applicant does not have a redundancy pay entitlement.
DECISION
The decision under review is affirmed.
I certify that the preceding 65 (sixty-five) paragraphs are a true copy of the reasons for the decision herein of Professor Robert Deutsch .............................[sgd]...........................................
Associate
Dated 24 June 2016
Date(s) of hearing 2 March 2016 Date final submissions received 6 April 2016 Advocate for the Applicant Mr M Boorne Solicitors for the Respondent Mr J Carroll, Clayton Utz
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