Vickers v Challenge Australian Dairy Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Vickers, in the matter of Challenge Australian Dairy Pty Ltd (Administrators Appointed) (Receivers & Managers Appointed) [2011] FCA 10  

Citation: Vickers, in the matter of Challenge Australian Dairy Pty Ltd (Administrators Appointed) (Receivers & Managers Appointed) [2011] FCA 10
Parties: DERRICK CRAIG VICKERS AND KATHRYN GUINIVERE WARWICK (IN THEIR CAPACITY AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF CHALLENGE AUSTRALIAN DAIRY PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED)) v CHALLENGE AUSTRALIAN DAIRY PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED) (ABN 59 103 242 155)) and JEFFREY LAURENCE HERBERT AND SIMON GUY THEOBALD (IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF CHALLENGE AUSTRALIAN DAIRY PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED))
File number: WAD 393 of 2010
Judge: BARKER J
Date of judgment: 13 January 2011
Catchwords:

CORPORATIONS – receivers – private receivership – whether s 558(1) Corporations Act 2001 (Cth), entitling employees of a company in liquidation to payment for services under s 556, applies to companies in receivership.

Held: s 558 does not apply to companies in receivership

CORPORATIONS – receivers – private receivership – whether receivers personally liable under s 419 Corporations Act 2001 (Cth) to pay superannuation contributions, superannuation guarantee charges, annual leave or long service leave to employees who continue in employment after the appointment of receivers.

Held: receivers not personally liable

Legislation: Corporations Act 2001 (Cth) s 433(3)(c), s 433(9), s 556(1)(e), s 556(1)(g), s 558(1)
Cases cited: Australian Securities and Investments Commission v Marlborough Ltd (1993) 177 CLR 485
Love v The Image Centre Pty Ltd (1991) 33 AILR 406
McEvoy v Incat Tasmania Pty Ltd (2003) 130 FCR 502
Re Office-Co Furniture Pty Ltd [2000] 2 Qd R 49
Whitton v ACN 003 266 886 Pty Ltd (1996) 42 NSWLR 123
Date of hearing: 20 December 2010
Place: Perth
Division: General Division
Category: Catchwords
Number of paragraphs: 65
Counsel for the Plaintiffs: Ms KF Banks-Smith
Solicitor for the Plaintiffs: Allens Arthur Robinson

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 393 of 2010

IN THE MATTER OF CHALLENGE AUSTRALIAN DAIRY PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) (ABN 59 103 242 155)

BETWEEN:

DERRICK CRAIG VICKERS AND KATHRYN GUINIVERE WARWICK (IN THEIR CAPACITY AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF CHALLENGE AUSTRALIAN DAIRY PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED))
Plaintiffs
AND:

CHALLENGE AUSTRALIAN DAIRY PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED) (ABN 59 103 242 155)
First Defendant

JEFFREY LAURENCE HERBERT AND SIMON GUY THEOBALD (IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF CHALLENGE AUSTRALIAN DAIRY PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED))
Second Defendants

JUDGE:

BARKER J

DATE:

20 DECEMBER 2010

PLACE:

PERTH

THE COURT DECLARES THAT:

1.Section 433 of the Corporations Act 2001 (Cth) does not oblige the plaintiffs to pay annual leave or long service leave entitlements pursuant to s 556(1)(g) of the Corporations Act, to employees of the first defendant:

1.1who remained employed by the first defendant…

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Details
Case
[2011] FCA 10
Decision Date

CaseChat Overview and Summary

Derrick Craig Vickers and Kathryn Guinivere Warwick, acting as receivers and managers of Challenge Australian Dairy Pty Ltd, brought an application to the court to clarify their obligations and liabilities towards employees who remained employed after their appointment as receivers. The primary concern was whether the receivers were required to pay certain employee entitlements, such as annual leave, long service leave, superannuation contributions, superannuation guarantee charges, and other post-appointment leave benefits. These issues arose because the receivers had not paid these entitlements, which were estimated to amount to approximately $660,000. The court was asked to determine whether these payments were to be made as priority payments under the Corporations Act 2001 or if the receivers were personally liable for such payments.

The court addressed two key legal questions. Firstly, whether section 558(1) of the Corporations Act, which entitles employees of a company in liquidation to payment for services under section 556, applies to companies in receivership. Secondly, whether receivers are personally liable under section 419 of the Corporations Act to pay superannuation contributions, superannuation guarantee charges, annual leave, or long service leave to employees who continue in employment after the appointment of receivers. The court considered the nature of the receivers' appointment and the continuity of employment contracts, accepting that the receivers were not personally liable for these employee entitlements and that section 558 does not apply to companies in receivership.

The court found that the receivers were not personally liable to pay the aforementioned employee entitlements and that section 558 did not apply in the context of a company under receivership. This conclusion was based on the distinction between liquidation and receivership, and the specific provisions of the Corporations Act concerning these scenarios. Consequently, the receivers were not required to pay the outstanding entitlements to the employees as priority payments or under their personal liability. The court also ordered that the plaintiffs' costs be paid out of the assets of the first defendant on an indemnity basis and that the costs of the second defendants be costs of the voluntary administration of the first defendant, to be paid from the assets of the first defendant and taxed if not agreed.

Orders

Orders of the court

4. The plaintiffs’ costs be paid out of the assets of the first defendant on an indemnity basis.

5. The costs of the second defendants be costs of the voluntary administration of the first defendant and be paid from the assets of the first defendant, to be taxed if not agreed.

Note:

Background

Background to the litigation

These are the reasons for doing so. FACTS The application of the plaintiffs was supported by the affidavits of Derrick Craig Vickers (one of the plaintiffs) in his capacity as one of the receivers and managers of the first defendant, Challenge Australian Dairy Pty Ltd (Administrators Appointed) (Receivers & Managers Appointed) (the company), made 13 December 2010 and 16 December 2010, as well as an affidavit of Bryn Francis Dodson, solicitor, filed 20 December 2010. The facts outlined are drawn from those affidavits. On 28 October 2010, the second defendants were appointed as joint and several voluntary administrators of the company. Immediately following the appointment of the second defendants, the National Australia Bank Limited (NAB) appointed Mr Vickers and Kathryn Guinivere Warwick as joint and several receivers and managers of the company pursuant to a debenture dated 1 November 2006 granting to the NAB a fixed and floating charge over the undertaking of the company and all of its assets, both present and future. Prior to the appointment of the administrators and receivers, the company carried on business of manufacturing or processing dairy products at dairy facilities in Boyanup, Western Australia (the Boyanup dairy) where it produced bottled milk, skim milk powder and butter. At Capel (the Capel dairy) it produced milk for both domestic and export use and also produced whey powder and cheese. The company obtained supplies of milk (CDC milk) from members of Challenge Dairy Co-Operative Limited (CDC), a company registered under the Companies (Co-Operative) Act 1943 (WA). CDC is a substantial shareholder of the first defendant company. Stated generally, historically in the course of its business, the company processed CDC milk which was then supplied in bulk to third party customers, or it used CDC milk at the Boyanup dairy and at the Capel dairy in the manufacture of milk and milk products which were then sold to customers. Due to the nature of its operations, the limited supply of CDC milk and the fact that Capel dairy was running at a loss, the receivers decided on 4 November 2010 to put the Capel dairy on care and maintenance. As a consequence, the number of employees engaged at the Capel dairy progressively declined as employees were retrenched, resigned or relocated to work at the Boyanup dairy to allow them to continue their employment with the company. Those employees who were retrenched are to be paid a retrenchment payment in accordance with s 433 of the Corporations Act 2001 (Cth) (the Act). However, the receivers have not paid those employees or the resigning employees any:(a)entitlements in respect of any annual leave and long service leave that had not become “due” on the date of the receivers’ appointment; or(b)superannuation or annual leave or long service leave entitlements falling “due” after the date of the receivers’ appointment. From 30 October 2010 until 26 November 2010, CDC supplied the company with CDC milk (although a lesser quantity than CDC supplied to the company before the appointment of the receivers) without charging the company or the receivers for the CDC milk supplied.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Accordingly, I proceeded to hear the application ex parte.CONSIDERATION The plaintiffs seek to clarify their obligations and liabilities as receivers with respect to payments to those employees of the company who remained on as employees following the date of the appointment of the receivers. As noted the receivers have continued to pay wages to those employees, but the question is whether certain other entitlements, namely leave payments and superannuation contributions are, to be paid to them either:(a)as priority payments under s 433 of the Act; or(b)on the basis that the receivers are personally liable for such entitlements under s 419 of the Act. The receivers point out that while there is a prospect that most employees will be retrenched in the short term, some may continue to be employed by the company after the retirement or removal of the receivers. The question arises whether the receivers may be liable for employee entitlements which accrue after their retirement or removal, again under s 433 or s 419 of the Act. The plaintiffs say the questions raised have either not been the subject of published reasons of the Court or have been the subject of conflicting decisions. They also say, through counsel, that receivers, as a matter of practice, sometimes choose of their own accord to follow one line of decision or the other. The amounts in question are not small (estimated at approximately $660,000) and the course of conduct by the receivers in the asset sale process may differ according to their liabilities to employees. Put simply, if the receivers are obliged to pay the relevant employees in priority to their appointer’s debt, then more assets will need to be realised before the receivers can satisfy their appointer’s debt and retire. If the receivers are not liable for such payments, or they are not priority payments, then it may fall to the first defendants to deal with such payments to the employees. Accordingly, they were joined in the proceedings. Further, as the employees may have an interest in the determination of the issues, those who are Union members have been informed, via the Union of this application. For completeness, it should be noted that no issues arise on the application as to payment of entitlements to employees who were retrenched prior to or immediately upon the appointment of the receivers, or with respect to the retrenchment payments generally. From the receivers’ point of view, the law with respect to such payments is not considered contentious. The receivers are continuing to pay wages of continuing employees so no practical issue arises with respect to such wages. It is generally accepted that the appointment of a receiver out of court, as here, does not itself terminate a contract of employment: McEvoy v Incat Tasmania Pty Ltd [2003] FCA 810; (2003) 130 FCR 503 (McEvoy) at [6]. I accept that in this case there has been no act by the receivers which suggests entry into new contracts with the relevant employees or the personal adoption of pre‑existing contracts. Therefore, the application proceeds on the basis that the relevant employees remained employed by the company under their pre‑existing contracts despite the appointment of the receivers.