Re Office-Co Furniture Pty Ltd

[1999] QSC 63

IN THE SUPREME COURT

OF QUEENSLAND

Application No. 1968 of 1999

Brisbane

Before: de Jersey CJ

[Re Office-Co Furniture Pty Ltd]

IN THE MATTER of the Corporations Law            

- and -

IN THE MATTER of Office-Co Furniture Pty Ltd   (Receivers and Managers Appointed)

ACN 010 939 563

REASONS FOR JUDGMENT - de JERSEY CJ

Judgment delivered 26 March 1999

On 5 September 1997 receivers and managers were, under fixed and floating charges, appointed to Office-Co Furniture Pty Ltd. There were then employees of the company who were entitled to both annual and long service leave, but had not taken it. The receivers seek a direction that they should pay those employees in respect of their accrued leave, up to the time of the commencement of the receivership, with priority in terms of s.433(3)(c) of the Corporations Law. 

That provision obliges a receiver to pay, with priority over the debt secured by the debenture, “any debt or amount that in a winding-up is payable in priority to other unsecured debts”.  The provision follows:

“433(3) [Priority of debts or amounts] In the case of a company, the receiver or other person taking possession or assuming control of property of the company shall pay, out of the property coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:

...

(c) subject to subsections (6) and (7), next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(e), (g) or (h) or section 560.”

The relevant parts of that priority provision with respect to winding up follow:

“556(1) [Ranking] Subject to this Division, in the winding up of a company the following debts and claim must be paid in priority to all other unsecured debts and claims:

...

(e) subject to subsection (1A) - next, wages and superannuation contributions payable by the company in respect of services rendered to the company by employees before the relevant date;

...

(g) subject to subsection (1B) - next, all amounts due:

(i)on or before the relevant date; and

(ii)because of an industrial instrument; and

(iii)to, or in respect of, employees of the company; and

(iv)in respect of leave of absence;

(h) subject to subsection (1C) - next, retrenchment payments payable to employees of the company.”

Some of the terms of para (g) of s.556(1) are separately defined.  “The relevant date” is relevantly defined by s.433(9) as the date of appointment of the receiver.  “Industrial instrument” is defined (s.9) to include contracts of employment and industrial awards.  The term “leave of absence” is defined (s.9) to include, as relevant, long service leave and annual leave.

The entitlement to long service leave, in the event of termination as particularly relevant here, is governed by s.193 of the Workplace Relations Act 1997, which is in the following terms:

“193.(1) An employee who is entitled to long service leave under a law, industrial instrument, or other agreement or arrangement, is entitled to leave that is at least as favourable as the entitlement under this part.

(2) The entitlement of employees to long service leave under this part is-

(a)for an employee with 15 years continuous service - 13 weeks; and

(b)for an employee, with at least 10 but less than 15 years continuous service, whose service is terminated - a period that bears to 13 weeks the proportion that the employee’s period of the continuous service (stated in years, and a fraction of a year if necessary) bears to 15 years; ... ” (my underlining)

As to annual leave, the several awards which cover this group of employees contained materially similar provisions.  Typical is the Transport, Distribution and Courier Industry Award - Southern Division, which provides:

“5.2 Annual Leave

(1)Every employee (other than a casual employee) covered by this Award shall at the end of each year of his employment be entitled to an annual holiday on full pay of 152 hours.

...

If the employment of any employee is terminated at the expiration of a full year of employment, the employer shall be deemed to have given the holiday to the employee from the date of the termination of the employment and shall forthwith pay to the employee in addition to all other amounts due to him, his pay, calculated in accordance with subclause (2) hereof, for four weeks and also his ordinary pay for any statutory holiday occurring during such period of four weeks.

If the employment of any employee is terminated before the expiration of a full year of employment, such employee shall be paid in addition to all other amounts due to him, an amount equal to one-twelfth of his pay for the period of his employment calculated in accordance with subclause (2) hereof ... “ (underlining mine)

I have dwelt on termination of employment.   That is because for purposes of s.556, a contract of employment otherwise subsisting as at the commencement of a winding up is deemed then to be terminated, as emerges from s.558, and this is related back, as to consequential entitlements, to s.556 which accords priority. The terms of s.558 are:

“558(1) [Right to payment] When a contract of employment with a company being wound up was subsisting immediately before the relevant date, the employee under the contract is, whether or not he or she is a person referred to in subsection (2), entitled to payment under section 556 as if his or her services with the company had been terminated by the company on the relevant date.” (underlining mine)

(The “relevant date” for the purposes of that provision is the date of commencement of a winding up.)

It may therefore be seen that in a winding up, the contract of employment is taken to have been terminated upon the commencement of the winding up, entitling an employee to any payment consequent upon termination. That payment would then become an “amount due” on “the relevant date” (s.556(1)(g)). Were this a winding up, then upon that deemed termination for these employees, amounts would fall due for accrued annual leave under clause 5.2 of the award mentioned above, as an example, and pro rata in respect of more than 10 years but less than 15 years long service under s.193(2) of the Workplace Relations Act.  In a winding up, those payments would be made with the priority set up by s.556(1).

Ms Dalton, who appeared for the receivers, submitted that a similar result should follow in this receivership, because of s.433(3)(c). That section gives priority to “any debt or amount that in a winding up is payable in priority ... “. Because of the operation of s.558, amounts in respect of leave for periods of employment prior to a liquidation are debts that “in a winding up are payable in priority to other secured debts pursuant to paragraph 556(1)(g)”, to use the words of s.433(3)(c). The clear intent of s.433 is that similar priority be accorded in a receivership as in a winding up.

The alternative contention would be that although s.558 will operate with relation to a winding up, giving rise to “debts” which would otherwise not arise, which then gain priority because of s.556, the section cannot be called in aid in a receivership to convert at best inchoate liability into debts or amounts due. It would be odd were the result of the application of these provisions to be different in the case of a receivership, because the intent seems to be to equate the two regimes in this respect. But apart from that, and more importantly, the language of the provisions to my mind leads intractably to the conclusion Ms Dalton urges.

In terms of s.433(3)(c), which relates specifically to receivership, these amounts are “debt(s) or amount(s) that in a winding up (are) payable in priority”, because of the effect of s.558 in deeming the employment to have been terminated as at the commencement of the winding up. In other words, although s.433 refers specifically only, as relevant, to section 556, in determining what amounts are “due” for the purposes of the latter section, one must necessarily read it with section 558. I cannot see why one should go through that process for winding up, but not receivership.

I was referred to contrary decisions. The first is Love v. The Image Centre Pty Ltd, an unreported decision of Young J in the Supreme Court of New South Wales on 13 February 1991.  A receiver was appointed to a continuing business. Those employees rostered to take annual holidays duly took them, and other payments to the employees continued as normal.  Questions arose as to the receivers’ responsibility (personally) for employee entitlements.  It was submitted for the receiver that “it could never be said that as at the date of the appointment of a receiver amounts were due and payable to employees for any annual or long service leave”.  Young J accepted that proposition, and said:

“In the instant case apart from situations where the annual leave fell due in the ordinary course of business ... the employees were continued in their employment so that the liability to pay money did not arise during the receiver’s incumbency.”

The second, also a case of receivership, is Whitton v. ACN 003 266 886 Pty Ltd (Controller Appointed) (In Liq.) (1996) 42 N.S.W.R.L. 123, where at p. 148 Bryson J said:

“Section 556(1)(g) specifies in what circumstances an amount for leave of absence is due if it is to fall within that paragraph; an amount must be due on or before 8 March 1995 (which is the relevant date under s.433(9)).  In my opinion it cannot be said of an accruing leave entitlement, which had not by 8 March 1995 reached the point where there was either grant and acceptance of a holiday carrying with it the right to pay holiday pay during the holiday, or a termination of employment on which a sum of money was payable in lieu of the holiday, that any amount was due on 8 March 1995.  Something was due, but it was not a debt or an amount; it was an accruing entitlement to a holiday, for which payment on termination of employment was substituted if employment was terminated, and it was not a debt, or an amount.”

In my respectful view, those determinations - neither of which expressly adverts to s.558 - overlook the impact of that section of the Corporations Law, which I consider operates, in the case of a receivership, on s.556, and thence s.433, in the manner I have described.  I also respectfully disagree with the view suggested in this context in Professor O’Donovan’s work, “Company Receivers and Managers” 2nd ed., para 11.800, citing Love, that s.558 “only applies in company liquidations”. I consider that it can, in that way apply, if indirectly, to cases of receivership.

Ms Dalton separately submitted that these payments amounted to “retrenchment payments” under s.556(1)(h).  Section 556(2) defines a “retrenchment payment” as “an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee’s employment by the company ... “.   I do not consider that these were amounts payable “in respect of the termination” of the employment.  While it is true that on this analysis they fell due because of a deemed termination, they were payable, not in respect of that, but “in respect of” annual leave and long service leave entitlements.

I proceed now in the exercise of my jurisdiction under section 424 of the Corporations Law. There will be a direction that the receivers and managers of the company are to pay employees of the company for annual leave entitlements and long service leave entitlements in respect of employment prior to the appointment of the receivers and managers, with priority pursuant to s.433(3)(c) and section 556(1)(g) of the Corporations Law.