Waheed and Secretary, Attorney-General's Department

[2021] AATA 248

Waheed and Secretary, Attorney-General's Department [2021] AATA 248 (17 February 2021)

Division:GENERAL DIVISION

File Number(s):      2020/3922

Re:Ihtasham Waheed

APPLICANT

AndSecretary, Attorney-General's Department

RESPONDENT

DECISION

Tribunal:Member R West

Date:17 February 2021

Place:Melbourne

The Tribunal affirms the decision under review.

........[]................................................................

Member R West

Catchwords

FAIR ENTITLEMENTS GUARANTEE – winding up - excluded employee – whether Applicant a director within the meaning of s 556 of the Corporations Act – decision affirmed

Legislation

Administrative Appeals Tribunal Act 1975 (Cth)
Corporations Act 2001 (Cth)
Fair Entitlements Guarantee Act 2012 (Cth)

Cases

Grimaldi v Chameleon Mining NL (No 2) [2012] FCACA 6
Australian Securities and Investments Commission v King [2020] HCA 4

REASONS FOR DECISION

Member R West

17 February 2021

INTRODUCTION

1. In this matter, the Applicant has applied for the review of the decision of the Respondent dated 26 June 2020, that he was not eligible for an advance payment under the Fair Entitlements Guarantee Act 2012 (‘FEG Act’).

BACKGROUND

1. The Applicant was employed by Matchbyte Consulting Pty Ltd [ACN: 16 107 903 177] (‘Matchbyte’) from July 2013 as a Business Development and Operations Manager.

2. On 22 April 2020, Matchbyte ceased trading and the Applicant’s employment was terminated.

1. On 27 May 2020, the Applicant made a claim for an advance under the Fair Entitlements Guarantee (‘FEG’) scheme in respect of his employment with Matchbyte. The FEG is a legislative scheme to cover certain unpaid employment entitlements to eligible employees who lose their job due to the liquidation or bankruptcy of their employer.

2. On 29 May 2020, the Respondent determined that the Applicant was not eligible for an advance under the FEG scheme on the grounds that he was excluded under s 11(1) of the FEG Act, by reason that he was a director of Matchbyte at the relevant time and an excluded employee for the purposes of s 556 of the Corporations Act 2001 (‘Corporations Act’)(‘Initial Decision’).

3. On 2 June 2020, the Applicant applied for an internal review of the Initial Decision.

4. On 26 June 2020 the Respondent affirmed the Initial Decision (‘Reviewable Decision’).

5. On 29 June 2020, the Applicant applied to the Tribunal for review of the Reviewable Decision.

6. The Tribunal conducted a hearing of the application on 18 December 2020.

10. The hearing was conducted in the context of restrictions placed on the community in response to the COVID–19 pandemic. These restrictions necessitated that the hearing be conducted by audio/visual link. The Applicant and the Respondent both consented to the hearing proceeding on 18 December 2020 on the basis that it was conducted by audio/visual link. The Tribunal determined pursuant to s 33A of the Administrative Appeals Tribunal Act 1975 (‘AAT Act’) that the matter be heard by audio/video link. The Applicant was self-represented at the hearing. The Respondent was represented by Ms Pendle, a solicitor with the Australian Government Solicitor.

CONSIDERATION OF THE ISSUES

11.  The relevant factual basis for the application before the Tribunal, which is not in dispute, is:

a.    the Applicant worked for Matchbyte from July 2013 until April 2020;

b.    the Applicant was appointed as the second director of Matchbyte on 21 September 2017;

c.     Matchbyte entered voluntary administration in April 2018 and continued to trade after a Deed of Company Arrangement (DOCA) was executed in June 2018;

d.    on 1 October 2019, the Administrator placed Matchbyte into liquidation; and

e.    on 22 April 2020, the Liquidators caused Matchbyte to cease trading and terminated the employment of all the remaining employees including the Applicant.

12.  The Applicant claims to be owed the net amount of $140,461 by Matchbyte comprising unpaid wages of $53,272, annual leave entitlements of $54,083, redundancy pay of $82,982 and superannuation contributions of $25,304.

RELEVANT LEGISLATION

13. Section 10 of the FEG Act sets out the eligibility requirements for the Fair Entitlements Guarantee, which are subject to the exclusion provisions in ss 11-13 of the FEG Act.

14. Section 11 of the FEG Act provides that individuals with a personal connection with their employer are not eligible for an advance for the person’s employment by an employer if:

(a)section 556 of the Corporations Act applies to the winding up of the employer; and

(b)the person is an excluded employee under s 556 of the Corporations Act in relation to the employer.

15.  An excluded employee is relevantly defined under s 556 of the Corporations Act as an employee of the company who has been:

(a)at any time during the period of 12 months ending on the relevant date; or

(b)at any time since the relevant date;

or who is, a director of the company.

16. Relevant date in relation to a winding up, and for the purposes of s 556 of the Corporations Act, means the day on which the winding up is taken to have begun in light of Division 1A of Part 5.6 of the Corporations Act (see s 9). The parties in this case provided inconsistent submissions regarding the relevant date for the purpose of s.556 (2), but neither party sought to argue that the inconsistencies were a material consideration for the Tribunal. The Respondent asserted that the relevant date is 26 April 2018, being the date administrators were appointed to Matchbyte. The Applicant asserted that the relevant date is 22 April 2020, the date his employment was terminated, and the company ceased trading. The disagreement on this issue is essentially a moot point because the Applicant was a director of Matchbyte on each of the dates and certainly within the period of 12 months ending on either date as stated in s.556 of the Corporations Act.

17. Having reviewed the provisions of Division 1A of Part 5.6 of the Corporations Act the Tribunal is not satisfied that it has sufficient evidence to reach a concluded view as to the correct determination of the relevant date. However, the Tribunal is satisfied that the Applicant was a director of the company continuously from well before the date of the appointment of administrators until the date the company ceased trading and the Applicant’s employment was terminated. Accordingly, the Tribunal is satisfied that the Applicant meets the temporal requirements of the definition of an excluded employee under s 556 of the Corporations Act.

18. Section 9 of the Corporations Act defines a Director of a company to mean:

a.    a person who:

i.is appointed to the position of a director; or

ii.is appointed to the position of an alternate director and is acting in that capacity regardless of the name that is given to their position; and

b.    unless the contrary intention appears, a person who is not validly appointed as a director if:

i.they act in the position of a director; or

ii.the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.

RESPONDENT’S SUBMISSION

19. The Respondent contends that s 556 of the Corporations Act is applicable to the winding up of Matchbyte. As the Applicant was validly appointed as a director of Matchbyte during the relevant period, he is deemed an excluded employee for the purposes of s 11(1) of the FEG Act and is not eligible for an advance under the FEG scheme.

APPLICANT’S SUBMISSION

20. The Applicant did not dispute that s 556 of the Corporations Act applied to the winding up of Matchbyte and he accepted that at all relevant times he was validly appointed as one of the Directors of Matchbyte.  Australian Security and Investments Commission (‘ASIC’) records state that the Applicant was appointed as a director on 21 September 2017, having previously been a director from 10 June 2004 until 21 November 2011[1].

[1] T9.2

21.  The Applicant nevertheless contended that his appointment as a director was for the sole purpose of complying with the requirement of the Corporations Act, specifically, that the company have at least one local Australian resident as a director at all times. He claimed that he worked for Matchbyte only in the capacity of a full-time employee and performed only the assigned duties of Business Development and Operations Manager.  A letter of appointment dated 23 September 2017 confirmed the limited role the Applicant was to play as a director.[2]

[2] T1.1

22.  The Applicant contended that:

a.he was a director in name only and had limited to no powers;

b.the other named director and CEO was responsible for all material Company decisions including being a bank account signatory, negotiating contracts, making strategic and financial decisions;

c.he did not hold any shares in Matchbyte;

d.he did not carry out any director related business responsibilities and was not an account signatory;

e.he deferred all decisions in respect to all financial and strategic matters to the other named director and CEO; and

f.he received no additional remuneration, commissions, bonuses or shares for being a director.

23. The Applicant argued that for the purpose of s 556 of the Corporations Act a person is to be considered a director only if the person satisfies the criteria set out in s 9 for an officer or director, namely that they are a person:

a.who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or

b.who has the capacity to affect significantly the corporation's financial standing; or

c.in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or he corporation the directors of the Company are accustomed to act in accordance with the person’s instructions or wishes).

24. The Applicant argued further that the Tribunal has a discretion to consider the factual circumstances of his appointment as a director to determine whether he satisfied the criteria in s 9 in order to determine whether he should properly be regarded as an excluded employee for the purposes of the FEG scheme.  The Applicant referred to the decisions of the Full Court of the Federal Court in Grimaldi v Chameleon Mining NL (No 2) [2012] FCACA 6 and of the High Court in Australian Security Investments Commission v King [2020] HCA 4.

25. The Respondent did not challenge the factual basis of the Applicant’s claim but argued that the Tribunal does not have a discretion under the FEG Act to consider the individual circumstances in which the Applicant was appointed as director. The Respondent contended that Grimaldi and King are not applicable to the issues before the Tribunal as they were cases considering whether an individual should be considered a shadow director or de-facto director for the purposes of s 9 of the Corporations Act. The Respondent asserted that the task before the Tribunal is to consider whether the Applicant was a director for the purposes of the definition of excluded employee under s 556 not whether he was an officer for the purpose of s.9 of the Corporations Act.

CONCLUSION

26. The Tribunal accepts the submission of the Respondent that the threshold issue to be determined in this case is whether the Applicant is an excluded employee for the purposes of s 556 of the Corporations Act. If he is an excluded employee, then it follows that he is ineligible for the FEG under s 11 of the FEG Act.

27. The definition of an excluded employee in s 556(2) of the Corporations Act is quite clear.   It applies to a person who was, at the relevant date a director of the Company.

28. The definition of a director in s 9 of the Corporations Act draws a distinction between a person who is appointed to the position of a director (paragraph(a)(i)) and a person who, although not validly appointed as a director, acts in the position of a director or who the directors are accustomed to act in accordance with the person’s instructions or wishes (paragraphs (b)(i) and (ii)). The positions held by a person referred to in paragraphs (b) (i) and (ii) of the definition are often referred to as a de facto or shadow director respectively.

29. There is no dispute in this case that the Applicant was appointed as a director of Matchbyte at the relevant time. The criteria set out in paragraphs (b)(i) and (ii) of the definition to determine whether a person is a shadow director or a de facto director are not applicable to a person who is validly appointed as a director. The Applicant’s submissions misconstrue the requirements of s 9 by applying criteria relevant to one part of the definition to the other. A person validly appointed as a director does not have to meet the criteria set out for the purpose of determining whether a person who is not validly appointed is nevertheless a shadow director or de facto director. The reference to Grimaldi and King is misconceived.  Similarly, the Applicant’s reference to the definition of officer in s 9 fails to recognise the distinction between a director in paragraph (a) of the definition and a person who is not a director but who nevertheless meets the criteria set out in paragraph (b)(i) – (iii).

30. On the basis of the evidence, the Tribunal is satisfied that s 556 of the Corporations Act applied to the winding up of Matchbyte and that the Applicant was a validly appointed director of Matchbyte at the date of the winding up of the company. The Applicant was therefore, an excluded employee for the purposes of s 556 of the Corporations Act and was not eligible for the FEG under s 11 of the FEG Act.

DECISION

31.  The decision under review is affirmed.

I certify that the preceding 31 (thirty one) paragraphs are a true copy of the reasons for the decision herein of Member R West

...............[sgd]....................................................

Associate

Dated: 17 February 2021

Dates of hearing:	18 December 2020
Applicant:	By telephone
Advocate for the Respondent:	Ms Leisa Pendle
Solicitors for the Respondent:	Australian Government Solicitor