The statutory exemption can be refreshed each time a
person signs a new contract, even if he/she continues to hold the
Receivers of a failed company have been unable to convince the
Federal Court that statutory restrictions on termination payments
reduced the payout entitlement of a senior executive (White v
Norman; In the Matter of Forest Enterprises Australia Limited
(Receivers and Managers Appointed) (in Administration)  FCA
Mr White was employed as CEO by FEA in 2003. He continued in
that role under a series of contracts. In mid-2009, he signed a new
contract which included a provision for payment of a sum in lieu of
notice of termination.
FEA went into receivership in 2010. The receivers terminated Mr
White's contract without notice.
Mr White claimed that he was entitled to receive the full
contractual payment in lieu of notice. The receivers disagreed on
the grounds that it was subject to the prohibition on termination
payments made in connection with retirement from office (in Part
2D.2 of the Corporations Act).
This required the Court to consider two legal issues:
whether the payment in lieu was a benefit "given in
connection with" Mr White's retirement, within the meaning
of section 200B; and
if the payment fell under section 200B, was the payment covered
by one of the statutory exemptions for termination payments (in
"Given in connection with"
Mr White argued that the payment in lieu of notice was caused by
the receivers' decision not to give him notice and was not,
therefore, "in connection with" his retirement from
He apparently relied on a comment in an earlier case that a
payment in lieu of notice was not "in connection with"
with an employee's retirement (being, instead "in
connection with" the company's obligation to give
The Federal Court agreed that the immediate cause of a payment
in lieu was the employer's decision to proceed that way rather
than by giving notice. However, that was too narrow a reading of
"in connection with". In this case, the payment in lieu
had followed on from Mr White's loss of office, and that was
enough to show that it had been "in connection with"
Benefit under pre-employment agreement
Mr White therefore fell within the statutory provisions. That
was not, however, the end of the story.
Under section 200F there's an exemption for a payment
is a benefit given under a pre-employment agreement, as
consideration for taking up the employment; and
does not exceed the monetary limits in section 200F.
The receivers argued that the 2009 agreement to provide payment
in lieu could not have formed part of the consideration for Mr
White's agreeing to take the CEO position, since he had already
been CEO since 2003.
The Court held that the "consideration" referred to in
section 200F was consideration given "from time to time".
In other words, the statutory exemption can be refreshed each time
a person signs a new contract, even if he/she continues to hold the
Quantum of payment
As noted above, a termination payment is not exempted merely
because it falls under section 200F. The quantum of the payment
must not exceed the limits set by section 200F(2)-(5).
Those limits are based on an averaging of the amount paid to the
officer over the "relevant period". "Relevant
period" is defined as the "period" or "number
of periods" that the person has held the relevant office
The receivers argued that, if Mr White was holding the office of
CEO as a result of the 2009 contract, then the relevant period was
only from the date of signing the contract until his termination a
The Court took a different view. It said that the issue is not
the number of contracts under which the executive has been
employed, but the length of time he or she has been in office,
whether in a single period or a number of periods. If a person has
been CEO for X years under one contract, then the "relevant
period" is X years. If a person has been CEO for X years under
a series of contracts, the "relevant period" is still X
Mr White was entitled to the payment in lieu.
The restrictions on termination payments to executives have been
headline news for some time.
They were considerably beefed up by Parliament in 2009. Although
this case relates to events before those changes, the Court's
reasoning appears to be applicable to the current provisions.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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