Watson and Secretary, Department of Jobs and Small Business

[2019] AATA 1300

Watson and Secretary, Department of Jobs and Small Business [2019] AATA 1300 (14 June 2019)

Division:GENERAL DIVISION

File Number(s):      2018/0251

Re:Scott Watson

APPLICANT

AndSecretary, Department of Jobs and Small Business

RESPONDENT

DECISION

Tribunal:Deputy President J W Constance

Date:14 June 2019

Place:Sydney

The decision under review, being the decision of a delegate of the Secretary, Department of Jobs and Small Business, made 20 December 2017 that Mr Watson is ineligible for an advance under the Fair Entitlements Guarantee Act 2012 (Cth), is affirmed.

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

Deputy President J W Constance

CATCHWORDS

FAIR ENTITLEMENTS GUARANTEE - eligibility for an advance - whether Applicant a director of employer company - whether appointment valid - whether Applicant held himself out to be director - decision under review affirmed

LEGISLATION

Corporations Act 2001 (Cth)

Fair Entitlements Guarantee Act 2012 (Cth)

REASONS FOR DECISION

Deputy President J W Constance

INTRODUCTION

1. The Fair Entitlements Guarantee Act 2012 (Cth) (the FEG Act) is an Act “to provide for the Commonwealth to pay advances on account of unpaid employment entitlements of employees of employers” in circumstances set out in the Act.[1]

   [1] FEG Act, section 3.

2. Mr Watson was an employee of Subzero Holdings Pty Limited (the Company) when it went into administration on 11 February 2016. As such he would have been eligible for an advance but for any relevant application of, among other provisions, section 11 of the FEG Act read with section 556 of the Corporations Act 2001 (Cth). The effect of those provisions is that an employee who was a director of the Company at any time within the period of 12 months immediately prior to its going into administration is ineligible for an advance.

3. A delegate of the Secretary has decided to refuse Mr Watson’s application for an advance under the FEG Act. For the reasons which follow, that decision will be affirmed.

   BACKGROUND

4. It is not in dispute that the Company went into administration on 11 February 2016, at which time Mr Watson was an employee. Receivers and Managers were appointed to the Company on that day.[2]

   [2] Exhibit R1 at 13.

5. On 15 August 2016, Mr Watson’s employment by the Company was terminated by the Receivers and Managers.[3]

   [3] Exhibit R1 at 123-124.

6. Mr Watson applied for an advance under the FEG Act on 14 August 2017.[4]

   [4] Exhibit R1 at 81-136.

7. By decision made 20 December 2017, a delegate of the Secretary affirmed an earlier decision of another delegate made 31 August 2017 to refuse Mr Watson’s application. On 19 January 2018, Mr Watson applied to the Tribunal to review the refusal of his claim.

   LEGISLATION

8. Subsection 11(1) of the FEG Act provides:

   (1) A person is not eligible for an advance for the person’s employment by an employer if:

   (a) section 556 of the Corporations Act 2001 applies to the winding up of the employer; and

   (b) the person is an excluded employee under that section in relation to the employer.

   Under subsection 556(2) of the Corporations Act, “excluded employee” includes an employee who was a director of the Company at any time during the 12 months prior to the relevant date. The “relevant date” in this matter is 11 February 2016, the date the Receivers and Managers were appointed.[5]

   [5] See section 9 of the Corporations Act.

   ISSUE FOR DETERMINATION

9. The sole issue for determination in this application is:

   Was Mr Watson a director of the Company at any time during the 12 months prior to 11 February 2016?

   MR WATSON’S ARGUMENT

10. In his response to the Respondent’s Statement of Facts, Issues and Contentions, Mr Watson argued that:

    ·the Secretary has failed to show that he was validly appointed as a Director of the Company;

    ·from about October 2014 he did not hold out that he was a Director of the Company;

    ·he resigned as a Director of the Company on 10 November 2014.

    DOCUMENTARY EVIDENCE

    Australian Securities and Investments Commission (ASIC) records

11. A Current & Historical Organisation Extract issued by ASIC on 31 January 2018[6] records Mr Watson as a director of the Company from 19 March 2013 until 13 November 2015.

    [6] Exhibit R1 at 11-27.

    Minutes of Meetings of Directors

12. Minutes kept by the Company record that on 8 April 2013 a meeting of directors was held in Muswellbrook, New South Wales.[7] The Minutes record that Mr Watson was present at the meeting.

    [7] Exhibit R2, Annexure A at 52-54.

13. Minutes of a meeting of directors held on 14 May 2013 also record that Mr Watson’s attendance.[8]

    Extract of Particulars issued by ASIC and signed by Mr Watson

    [8] Exhibit R2, Annexure A at 61.

14. On 29 September 2013, ASIC issued an Extract of Particulars to the Company which recorded Mr Watson as a director who had been appointed on 19 March 2013.[9] Mr Watson initialled each page of the Extract confirming its accuracy.

    [9] Exhibit R2, Annexure A at 62-63.

    Minutes of a Deemed Meeting of Directors

15. On 30 September 2013, Mr Watson signed a document headed Minutes of a Deemed Meeting of Directors of Subzero Holdings Pty Ltd recording a resolution “that the directors are of the opinion that there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable”.[10]

    Supply Contract executed by the Company on 11 August 2015[11]

    [10] Exhibit R2, Annexure A at 64.

    [11] Exhibit R2, Annexure A at 65-364.

16. This contract was executed by the Company by its Authorised Officer, Mr McTaggart. Mr Watson witnessed the signature of Mr McTaggart. Immediately under his own signature Mr Watson recorded his occupation as “Director”. When he gave evidence Mr Watson confirmed that he had witnessed Mr McTaggart’s signature and that when he printed his occupation as “Director” he was referring to his role as a director of the Company. Mr Watson gave evidence that at that time he was not a director of any other company.

    Mr Watson’s letter of resignation as a Director of the Company

17. By letter dated 13 November 2015, Mr Watson advised the Company as follows:

    I, Scott Anthony Watson, hereby tender my resignation from the office of Director of Subzero Holdings Pty Limited ACN 153 522 212 effective immediately.[12]

    (Emphasis in original.)

    [12] Exhibit R1 at 178.

    Notification of resignation to ASIC

18. On 16 November 2015, Mr Watson signed a form advising ASIC of his resignation as a director of the Company on 13 November 2015. This form was lodged with ASIC on 20 November 2015.[13]

    [13] Exhibit R1 at 177.

    MR WATSON’S EVIDENCE

19. Mr Watson provided a Statutory Declaration made 22 June 2018[14] and statements dated 26 September 2017[15] and 14 September 2018[16]. He also gave evidence at the hearing.

    [14] Exhibit A1.

    [15] Exhibit R1 at 158.

    [16] Exhibit A2.

20. In his Statutory Declaration Mr Watson stated, in part:

    4. In about early 2013 I was approached by the CEO of the Subzero Group to see if I would be interested in becoming a director of Subzero Holdings. Subzero Holdings was to be a non-trading entity. I verbally agreed that I would be interested in becoming a director of a non-trading entity.

    5. I did not receive any further information regarding my interest in becoming a director of a non-trading entity. To my recollection, I did not sight or sign any other paperwork regarding the proposed position.

    …

    10. I do not recall signing any documents or receiving any emails in a capacity as Director. I had no control of finances, was not privy to financial or operational information and was not asked to attend board meetings.

    11. In about June 2015 I received a personal DPN [Directors Penalty Notice] for unpaid tax by Subzero Holdings.

    12. It was at this time that I became aware that I was a director of the company according to ASIC.

    13. I immediately handed the CFO and CEO of the company at the time a copy of the DPN and questioned why I had received it. I could not understand why I had received the DPN. This was the first I was aware of being a director according to ASIC. To my knowledge, I was not validly appointed. In addition, the company I verbally expressed an interest in becoming a director for (which to my knowledge I was not validly appointed), was to be a non-trading entity.

    14. I immediately requested a meeting with the board of directors of Subzero Group Limited around my exposure of being a director through an email to CEO, Graham Joe Clayton. Mr Clayton responded in writing demanding I never put anything in writing like that to him again and no meeting was organised. I do not have a copy of the emails as they were from my work email at the time which I no longer have access to.

    15. I contacted the CEO, Graham Joe Clayton, and verbally asked him on several occasions the progress of my removal from being a director on ASIC’s records. Mr Clayton did not respond.

    16. Desperate to get a resolve, against the CEO’s, Graham Joe Clayton, demands not to put anything in writing, I provided the CEO with written resignation letter on 13 November 2015 in order to hurry up the process of my removal.

    (Errors in original.)

21. In early July 2015 Mr Watson sent an email to Mr Clayton,[17] which is the email referred to by Mr Watson in paragraph 14 of his Statutory Declaration above. It read, in part:

    As per discussion in last weeks 100 day plan on the 1/7/2015 with Joe Clayton and others I have great concerns for myself as a director of Subzero Holdings PTY / LTD. For the last 2 years I have had no influence or input to the financial outcomes of Subzero Holdings PTY / LTD. I have no access to and financials nor bank accounts and no knowledge of the financial position of the business. I have acted in good faith under the direction of the executive officers and directors of the limited company. I agreed to be a director of Subzero Holdings as it was only to be a non trading entity in order to meet my obligations as a director.

    It has been highlighted to me after receiving 2 DPN and discussions with the finance team that Subzero Holding has become a trading entity. Neither I or any of the other directors had been asked nor advised of the changes we just found out by getting the DPN notices in the mail. I feel that I have had no correspondence otherwise from any parties.

    As a consequence we need to have a discussion about addressing this issue as I need some assurance on my depth of responsibility and my insurance coverage around this matter.

    (Errors in original.)

    [17] Exhibit R3, Annexure C.

22. Mr Watson’s statement of 14 September 2018 was made in response to the Respondent’s Statement of Facts, Issues and Contentions dated 10 August 2018. In that statement he said, in part:

    17. In about late October 2014 Scott Farrell resigned from his position as CEO. I requested to be removed as a director of Subzero Holdings Pty Ltd. A copy of that requested is attached at Annexure A.

    ……….

    20. I received a letter from Mr Farrell, director of the Company confirming receipt of my resignation and a copy is provided at Annexure B.

    (Emphasis in original.)

23. Annexure A is a copy of a letter dated 10 November 2014 and is addressed to the Company at its address in Muswellbrook, New South Wales. The letter reads:

    Dear Sirs

    Subzero Holdings Pty Limited

    I, Scott Anthony Watson, hereby tender my resignation from the office of Director of Subzero Holdings Pty Limited ACN 153 511 212 effective immediately.

    Yours faithfully

    [Signature]

    Scott Anthony Watson

    (Emphasis in original.)

24. Annexure B is a copy of a letter printed on the Company’s letterhead and reads as follows:

    11 November 2014

    Scott Watson

    191 Moobi Road

    SCONE NSW 2337

    Your resignation as Director from Subzero Holdings Pty Ltd

    I, Scott Farrell, Director of Subzero Holdings Pty Ltd, confirm receipt of your notice of resgination from the office of director of Subzero Holdings Pty Ltd. I have informed the Joe Clayton, who is the incoming interim CEO of Subzero Group and Director of Subzero Group Ltd, of your resignation for his action.

    We wish you the best in your future endeavours.

    Kind regards,

    [Signature]

    Scott Farrell

    Director

    (Errors in original.)

    EVIDENCE OF MR FARRELL, FORMER MANAGING DIRECTOR OF THE COMPANY

25. Mr Farrell provided a statement dated 12 December 2018[18] and gave evidence at the hearing.

    [18] Exhibit A4.

26. When Mr Farrell gave evidence he stated that:

    ·he was the Managing Director of the Company from the time it was registered until it was liquidated;

    ·he was sure that the “paperwork” for the Company would have been prepared correctly;

    ·some of the documents relating to Mr Watson’s appointment appear to have been lost;

    ·he no longer had any documents relating to the Company from 2013 to 2015 other than a letter of resignation as a Director by Mr Watson dated 10 November 2014 and a copy of his letter to Mr Watson of 11 November 2014;

    ·the two abovementioned letters were kept by him in his files at his home;

    ·Mr Watson delivered his letter of resignation dated 10 November 2014 to him personally at his home;

    ·he had “no idea what happened” after he accepted Mr Watson’s resignation.

    DISCUSSION

    Was Mr Watson validly appointed as a Director of the Company?

27. In his Statutory Declaration Mr Watson said that in early 2013 he expressed interest in becoming a director of the Company, on the basis that it was a non-trading entity, and that he did not receive any further information regarding his expression of interest thereafter. He said further that it was not until about June 2015 that he became aware he was a Director according to ASIC.[19]

    [19] Cf. paragraph 22 of these reasons.

28. Having considered all of the evidence I am satisfied that Mr Watson was properly appointed a Director of the Company on 19 March 2013 as recorded by ASIC.[20] Whatever Mr Watson may have believed as to the trading status of the Company, he attended directors’ meetings in April and May 2013. In addition, and of particular importance, Mr Watson confirmed the accuracy of the Extract of Particulars issued by ASIC in September 2013, which showed he was recorded as a director of the Company. This is inconsistent with Mr Watson’s evidence that it was not until June 2015 that he became aware he was recorded as a Director of the Company by ASIC.

    [20] Exhibit R1 at 11.

    Did Mr Watson hold himself out to be a Director of the Company after October 2014?

29. I am satisfied that as late as 11 August 2015 (being less than 12 months prior to the appointment of the Receivers and Managers) Mr Watson held himself out to be a director of the Company when he witnessed the execution of a supply contract by the Company.[21] On that occasion he described himself as “Director”. His evidence was that he was referring to his directorship of the Company and that at the time he was not a director of any other company.

    [21] Exhibit R2, Annexure A at 65-364.

    Did Mr Watson resign as a Director of the Company on or about 10 November 2014?

30. As referred to in the preceding paragraph, Mr Watson’s action in witnessing the execution of a Company contract in August 2015 is inconsistent with his having resigned the position nine months earlier. When he gave evidence at the hearing Mr Watson was unable to provide a satisfactory explanation for this inconsistency.

31. Further, Mr Watson’s evidence that he resigned in November 2014 is inconsistent with his action in providing a letter of resignation to the Company on 13 November 2015[22] and advising ASIC of this three days later.[23] It is also inconsistent with his evidence that it was not until June 2015 that he became aware he was a Director of the Company according to ASIC.[24]

    [22] Exhibit R1 at 178.

    [23] Exhibit R1 at 177.

    [24] Cf. paragraph 22 of these reasons.

32. I also take into account that when he wrote to Mr Clayton in July 2015 he referred to his concerns as a Director and sought assurance “on [the] depth of [his] responsibility”.[25] He did not refer to having tendered his resignation in November 2014. As Mr Watson was clearly concerned about his responsibilities as a Director of the Company it is unlikely that he would not have mentioned his earlier resignation had it in fact taken place.

    [25] Exhibit R3, Annexure C.

33. No satisfactory explanation was given by by Mr Farrell as to why he had “no idea” what happened to Mr Watson’s letter of resignation after it was delivered to him, despite his continuing role as the Managing Director of the Company until it was liquidated.

34. For the reasons stated, I am satisfied that Mr Watson resigned as a Director of the Company on 13 November 2015[26], within the period of 12 months immediately prior to the appointment of  Receivers and Managers to the Company.

    [26] Exhibit R1 at 177-178.

    CONCLUSION

35. The decision under review, being the decision of a delegate of the Secretary, Department of Jobs and Small Business, made 20 December 2017 that Mr Watson is ineligible for an advance under the Fair Entitlements Guarantee Act 2012 (Cth), will be affirmed.

I certify that the preceding 35 (thirty five) paragraphs are a true copy of the reasons for the decision herein of Deputy President J W Constance

........................................................................

Associate

Dated: 14 June 2019

Date of hearing:	14 January 2019
Applicant:	In person
Solicitors for the Respondent:	Clayton Utz