Mr Scott North v PrimeARC T/A Hfi Group

[2013] FWC 9894

[2013] FWC 9894

FAIR WORK COMMISSION

DECISION

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

Mr Scott North
v
PrimeARC T/A HFI Group
(U2013/7542)

DEPUTY PRESIDENT ASBURY BRISBANE, 17 DECEMBER 2013

Application for unfair dismissal remedy - Jurisdiction - High income threshold - whether an undischarged bankrupt is able to pursue an unfair dismissal remedy.

BACKGROUND

[1] Mr Scott North applies under s.394 of the Fair Work Act 2009 (the Act) for an unfair dismissal remedy in relation to his dismissal by “PrimeARC trading as HFI Group”. The application is met with a jurisdictional objection on the ground that Mr North is not a person protected from unfair dismissal, because his annual earnings were in excess of the high income threshold in s.333 of the Act.

[2] Directions were issued requiring the parties to file and serve submissions and witness statements in relation to the objection and to indicate whether cross-examination of any witness called by the other party was required.

[3] Mr North provided a statement appending bank statements said to establish what he was actually paid. Mr Ross Carman, Director and Chief Operating Officer of PrimeARC Group Corporation Pty Ltd which appears to be the parent company of HFI, provided a statement in support of the jurisdictional objection. On the basis of a contract of employment between Mr Scott North and HFI Group Pty Ltd, it appears that HFI Group Pty Ltd was the employer.

[4] Neither party indicated that cross-examination was required. However, the statements raised more questions than they answered, and the matter was listed for hearing to enable the parties to make oral submissions and address questions from the Commission about the material they had filed.

[5] Mr North did not attend the hearing and did not provide any reason for failing to do so. The hearing proceeded in Mr North’s absence on the basis that Mr Carman had travelled from interstate to attend, and it was clear from correspondence on the file that Mr North was aware of the hearing and had indicated that he would attend. Mr Carman gave oral evidence under oath and responded to questions from the Commission about his statement.

[6] On 22 September 2013, Mr North sent an email to my Associate advising that he was unable to attend the hearing due to the fact that he was working on an emergency breakdown at a remote location and needed to do so to support his children. Mr North also said he was suffering from the “flew” at the time and that he was not aware of the requirement to advise of his inability to attend. On 23 September 2013, Mr North sent a written response to the evidence provided by Mr Carman at the hearing on 17 September 2013.

[7] A further development occurred on 21 October 2013 when correspondence dated 16 October 2013 was received from Condon Associates Forensic Accountants, under the hand of Mr Schon Condon, advising that he had been appointed Administrator of each of the following Companies:

● Primearc Group Corporation Pty Ltd
● HFI Group Pty Ltd
● Primearc Group IP Holdings Pty Ltd
● Thermcool Pty Ltd
● Thermfresh Pty Ltd
● Thermfresh International Pty Ltd

The correspondence also advised that Receivers and Managers had been appointed for:

● Primearc Group Corporation Pty Ltd
● Thermfresh Pty Ltd
● HFI Group Pty Ltd
● Thermcool Pty Ltd

[8] The correspondence went on to advise that pursuant to s.440D and s.440F of the Corporations Act 2001 the proceedings should be stayed and enforcement processes suspended. Further, it was asserted that:

● The companies within the group are insolvent;
● No proposal has been or is likely to be submitted by any party for a Deed of Company Arrangement;
● It is anticipated that liquidation of each company will be recommended and that creditors will accept this.

[9] The matter was relisted for 17 October 2013 to allow this correspondence to be addressed and for Mr North to address the question of whether, as an undischarged bankrupt, he could pursue an application for an unfair dismissal remedy. At that hearing, Mr Kevin Cotter appeared on behalf of HFI Group Pty Ltd and/or PrimeARC Group Corporation Pty Ltd and reiterated the submission that proceedings should be stayed on the basis of s.440D and s.440F of the Corporations Act 2001.

EVIDENCE

[10] Mr Carman states that on 20 April 2012, PrimeARC Group Pty Ltd acquired the businesses and business assets of Mr Scott North (the Applicant in these proceedings) and his brother Mr Gary North. On 11 March 2012, as a condition of that sale, Mr Scott North was offered and executed an employment contract with HFI Group Pty Ltd (subsidiary of PrimeARC Group) in the full time position of Chief Technical Officer. The base remuneration set out in the contract is $174,000.00 per annum comprising salary and superannuation.

[11] Mr Carman asserts that in or about November 2012 PrimeARC Group was advised by Mr Gary North that Mr Scott North had voluntarily requested to reduce his salary to $85,000.00 per annum and that his brother Mr Gary North had effected this reduction from 27 September 2012. The Group’s Chief Financial Officer later became aware that this reduction had occurred. Mr Carman further asserts that at no time was approval sought or obtained from the Board to approve this material change to Mr Scott North’s employment agreement. Discussions were held with the Board to attempt to regularise Mr North’s remuneration, but no resolution was achieved before his dismissal.

[12] It is also asserted by Mr Carman that Mr Scott North was declared bankrupt on 28 November 2012 and that it appears that a major reason for the reduction in salary was to defeat his creditors including his Trustee in Bankruptcy and to avoid obligations arising from proceedings in the Family Court. Mr Carman submitted that because the Board of PrimeARC did not ratify or approve the purported adjustment to Mr North’s remuneration, he continued to be entitled to that remuneration until the date of his dismissal.

[13] Consistent with this view, Mr Carman gave evidence that the Chief Financial Officer has recorded in the financial records of the Company, the amount of $31,568.32 being unpaid wages accrued to Mr North to 28 February 2013. A worksheet prepared by the Chief Financial Officer setting out a reconciliation of Mr Scott North’s remuneration was appended to Mr Carman’s witness statement.

[14] In response to questions from the Commission, Mr Carman said that the amount of $31,568.32 has not been paid to Mr North because there is litigation in the Supreme Court between PrimeARC and Scott and Gary North, and that amount will “form part of the overall proceedings”. Mr Carman also said that the amount had been accounted for and set aside as a “contingent liability”, but could not state whether this had been indicated in documents provided to the Supreme Court. There were no formal annual accounts for PrimeARC tendered and no evidence that this liability has been accounted for in those accounts.

[15] In the alternative, Mr Carman said that the total amount of salary paid to Mr North for the period of 6 July 2012 to 28 February 2013 is $72,087.12 and this amount when annualised totals $101,140.00. In addition to this amount, Mr Carman said that for the period from 1 July 2012 to 28 February 2013, PrimeARC Group incurred the cost of $58,200.00 for legal fees paid to Mr Scott’s personal legal representative, a Victorian Barrister, for work performed for Mr North. This is said to be earnings on the basis that it is an amount applied or dealt with on the employee’s behalf or as the employee directs. The legal bills appended to Mr Carman’s witness statement are for “Advice” and under the heading “Solicitor’s Name” state “Direct Briefing”.

[16] Mr Carman also submitted that the legal representative who had been paid the amount of $58,200.00 is currently acting on behalf of Mr Gary North and Mr Scott North in litigation PrimeARC has instituted against them, and also in a family law matter involving Mr Gary North. According to Mr Carman the Company had never engaged that particular legal representative.

[17] Mr Carman also referred me to a decision of Commissioner Spencer dismissing an application by Mr Gary North for an unfair dismissal remedy, on the grounds that Mr Gary North’s annual earnings exceeded the high income threshold. 1 That decision indicates that Mr Gary North was the Managing Director of Thermfresh Pty Ltd. Thermfresh Pty Ltd appears to be part of the PrimeARC Group, but there is no evidence about what, if any position Mr Gary North held with PrimeARC Group Pty Ltd or HFI Group Pty Ltd which appears to have been the employer of Mr Scott North.

[18] In his written response, Mr North said that he was not served with Mr Carman’s statement before the hearing on 17 September 2013. Mr North also stated that:

● There was a share sale agreement which PrimeARC breached by paying only a deposit and then attempting to steal patents, trademarks and registered designs.
● Prior to his dismissal, all decisions were made by the board of directors, payments were made by the Company Accountant/Secretary and Mr Gary North had no independent authority.
● He is an undischarged bankrupt because of PrimeARC.
● PrimeARC was trading while insolvent
● He does not believe that PrimeARC has set aside monies owed to me and requests clear evidence about this matter.

[19] Mr Scott North maintains that all decisions in relation to his salary were made by the Board of Directors and his salary was reduced at the suggestion of the Company, because of the poor state of its finances. Mr Scott North also maintains that all payments to him were made by the Company Accountant/Secretary, and that Mr Gary North had no independent authority in relation to this matter.

[20] In relation to the assertions made by Mr Carman about the payment of personal legal expenses, Mr North variously said that he refutes this allegation and it is totally ridiculous and a serious lie. Mr North also states that he can get an affidavit from the solicitor if requested and prove that: “this wild manipulated comment is FALSE.”

[21] Mr Scott North tendered bank statements showing that he was paid a weekly wage of $1236.62 and that it was deposited by Thermfresh. The bank statements cover the periods 12/01/2013 to 11/03/2013 and 12/12/2012 to 11/01/2013. Other than a cash deposit of $300, there are no amounts credited to the account, in addition to the weekly wage of $1236.62.

LEGISLATION

[22] In relation to when a person is protected from unfair dismissal, s.382 of the Act provides as follows:

“382 When a person is protected from unfair dismissal

A person is protected from unfair dismissal at a time if, at that time:

(a) the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and

(b) one or more of the following apply:

(i) a modern award covers the person;

(ii) an enterprise agreement applies to the person in relation to the employment;

(iii) the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold.”

[23] Earnings are defined in s.332 as follows:

“332 Earnings

(1) An employee’s earnings include:

(a) the employee’s wages; and

(b) amounts applied or dealt with in any way on the employee’s behalf or as the employee directs; and

(c) the agreed money value of non-monetary benefits; and

(d) amounts or benefits prescribed by the regulations.

(2) However, an employee’s earnings do not include the following:

(a) payments the amount of which cannot be determined in advance;

(b) reimbursements;

(c) contributions to a superannuation fund to the extent that they are contributions to which subsection (4) applies;

(d) amounts prescribed by the regulations.

Note: Some examples of payments covered by paragraph (a) are commissions, incentive-based payments and bonuses, and overtime (unless the overtime is guaranteed).

(3) Non-monetary benefits are benefits other than an entitlement to a payment of money:

(a) to which the employee is entitled in return for the performance of work; and

(b) for which a reasonable money value has been agreed by the employee and the employer;

but does not include a benefit prescribed by the regulations.

(4) This subsection applies to contributions that the employer makes to a superannuation fund to the extent that one or more of the following applies:

(a) the employer would have been liable to pay superannuation guarantee charge under the Superannuation Guarantee Charge Act 1992 in relation to the person if the amounts had not been so contributed;

(b) the employer is required to contribute to the fund for the employee’s benefit in relation to a defined benefit interest (within the meaning of section 291-175 of the Income Tax Assessment Act 1997) of the employee;

(c) the employer is required to contribute to the fund for the employee’s benefit under a law of the Commonwealth, a State or a Territory.”

[24] Sections 440D and 440F of the Corporations Act 2001 provide that:

“440D  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.

440F  Suspension of enforcement process

                   During the administration of a company, no enforcement process in relation to property of the company can be begun or proceeded with, except:

(a)  with the leave of the Court; and

   (b)  in accordance with such terms (if any) as the Court imposes.”

CONSIDERATION

Do Mr North’s annual earnings exceed the high income threshold?

[25] Section 332(b) of the Act provides that an employee’s earnings include amounts applied or dealt with in any way on the employee’s behalf or as the employee directs. In the present case, it is asserted that Mr Scott North voluntarily reduced his salary without reference from the Board, in order to avoid his creditors and/or an order of the Family Court. It is suggested that Mr Gary North played some kind of role in the reduction as it was Mr Gary North who informed the Company that Mr Scott North had requested to reduce his salary.

[26] I accept that if Mr Gary North and Mr Scott North colluded to reduce Mr Scott North’s salary to defeat his creditors or a court order, and that Mr Scott North gave a direction in relation to that reduction, then it could be said that the amount by which the salary was reduced constituted earnings dealt with on behalf of Mr Scott North.

[27] By failing to comply with directions of the Commission and in particular by failing to attend the hearing in relation to the jurisdictional objection, Mr Scott North has not assisted his position. The assertion that Mr Scott North did not receive Mr Carman’s statement is at odds with the email covering the statement which indicates that it was sent to the same email address used by Mr Scott North to correspond with the Commission throughout these proceedings.

[28] Notwithstanding these issues, I am of the view that if all of the evidence of Mr Carman is accepted, it is insufficient to establish that Mr Scott North’s annual earnings exceeded the high income threshold.

[29] There was no evidence about the role that Mr Gary North held or what role he played in the alleged reduction of Mr Scott North’s salary, other than informing the Board that the reduction had been implemented. The decision of Commissioner Spencer in relation to the dismissal of Mr Gary North tendered by Mr Carman, indicates that Mr Gary North was employed by Thermfresh Pty Ltd, which is a different company within the PrimeARC Group, albeit Mr Scott North’s salary was paid by Thermfresh Pty Ltd.

[30] There is no evidence of any attempt by HFI or the PrimeARC Group to pay the amount of salary it is alleged Mr North is entitled to, prior to the litigation between the parties commencing. There is also no evidence of any correspondence advising Mr Scott North that this amount has been set aside for him or that it has been withheld pending the outcome of the litigation between the parties.

[31] There is no evidence that the disputed amount has been paid into Court or that the Court in which the litigation is being conducted has been notified that the amount is being held pending the outcome of the litigation. In the absence of a Court order, it is arguable that PrimeARC has no right to decide to withhold salary to which Mr Scott North is entitled, pending litigation being finalised, notwithstanding that the Company may have made arrangements to pay that salary into an account and hold it on behalf of Mr Scott North.

[32] I am also of the view that if Mr Scott North expended PrimeARC’s funds to pay his personal legal expenditure, without authority from the Company to do so, that the amounts so expended are not part of Mr Scott North’s annual earnings for the purpose of determining whether those earnings exceed the high income threshold. If Mr North did use Company funds in the manner alleged, then that is a matter that should be reported to the appropriate authorities.

Do s.440D and s.440F of the Corporations Act 2001 prevent Mr North’s application from being dealt with by the Commission without leave of a Court?

[33] There is evidence before the Commission that both PrimeARC Group Corporation Pty Ltd and HFI Group Pty Ltd are under administration and have had receivers and managers appointed. There is evidence that it will be recommended to creditors of those Companies that they be placed into liquidation.

[34] In Smith and others v Trolloppe Silverwood & Beck Pty Ltd (In liquidation) 2(Smith) a Full Bench of the Australian Industrial Relations Commission considered s.471B of the Corporations Act which is in the following terms:

“471B  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] In that case the Full Bench held that s.471B of the Corporations Act did not apply to proceedings in the Commission, on the basis that the provision includes only courts capable of exercising judicial power of the Commonwealth, and that proceedings in the Commission were not subject of the leave requirements in that section. Sections 440D and 440F are in similar terms, in that the sections deal with Court proceedings and prevent such proceedings from being commenced or continued without leave of a Court. On the authority in Smith those provisions are not an impediment to Mr Scott North’s unfair dismissal application proceeding.

[36] However, it should be noted that if matters have progressed to the point where there has been a resolution passed for voluntary winding up of PrimeARC or HFI Group Pty Ltd, that s.500 of the Corporations Act would come into play, and prevent an application proceeding before the Commission without leave of the relevant Court. The Commission could not grant such leave as it is not a “Court” as defined, 3 and Mr Scott North’s application for an unfair dismissal remedy would be dismissed on that basis.

CONCLUSION

[37] The jurisdictional objection of PrimeARC on the ground that Mr Scott North’s annual earnings exceeded the high income threshold is dismissed. An Order to that effect will issue with this Decision. For the reasons set out above, section 440D of the Corporations Act is not an impediment to Mr North’s unfair dismissal application proceeding.

[38] The question of whether an undischarged bankrupt is able to pursue an unfair dismissal remedy, is presently being considered by a Full Bench of the Commission. I do not intend to determine this aspect of the matter at this stage.

[39] I will re-list Mr North’s application for an unfair dismissal remedy when the Full Bench decision is released. At that time, I will consider any further application that may be made on behalf of PrimeARC by the Administrators and/or Receivers and Managers about its status.

DEPUTY PRESIDENT

Appearances:

Mr S. North on his own behalf

Mr R. Carman and Mr K. Cotter on behalf of the Respondent.

Hearing details:

2013.

Brisbane:

September 17;

October 17.

 1   [2013] FWC 6850

 2   PR940508

 3   Bruce v Fingal Glen Pty Ltd T/A Comfort Inn Adelaide Riveria [2013] FWC2704; Lawler v ABC Developmental Learning Centres Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) [2010] FWA 7679.

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