In a significant decision for both insolvent employers and Administrators, FWA recently allowed two unfair dismissal applications to proceed despite the company being in voluntary administration, finding that FWA was not a "court" within the meaning of section 440D of the Corporations Act 2001 (Cth) (Corporations Act).
The Administrators for the respondent-employer, were unsuccessful in arguing that the unfair dismissal proceedings were stayed under section 440D and the insolvent company was therefore exposed to continuing litigation as a result.
Mr Letizia and Mr Ryan (Applicants) were both employees of AMG Shared Services Pty Ltd (AMG Shared Services). The Applicants alleged that their employment was terminated in contravention of the unfair dismissal provisions of the Fair Work Act 2009 (Cth) (FW Act). Both Applicants filed a claim with FWA for unfair dismissal; Mr Letizia filed his claim on 24 July 2012, and Mr Ryan filed his claim 1 August 2012 (FWA Proceedings).
AMG Shared Services is one of 17 companies which forms part of the Australian Music Group Holdings Pty Ltd group of companies (AMG). On 23 August 2012 AMG Shared Services, along with the other 16 companies in AMG, was placed into voluntary administration. The Administrators submitted that the FWA Proceedings be adjourned indefinitely, or until leave of the court was obtained. As an alternative, they asked FWA to consider at least adjourning the FWA Proceedings until after the s439A creditors' meeting scheduled for 18 January 2013.
The Administrators submitted to FWA (amongst other things) that:
- the Administrators had limited resources
- the Receivers were in control of the businesses which were likely to be closed down
- section 440D of the Corporations Act precluded the commencement or continuation of a proceeding in FWA unless the applicant has the written consent of the Administrator or the leave of the Court.
Further, the Administrators argued that "the purpose of section 440D ... is to freeze proceedings against the company in voluntary administration, so that the administrator is not distracted with the litigation and can attend to the company's affairs".
The Administrators acknowledged the divergence in authorities about whether an unfair dismissal application before FWA was a "proceeding in a court" for the purposes of section 440D of the Corporations Act. They argued, however, that State and Federal Court decisions tended to find FWA was a court for section 440D purposes and that those decisions should prevail.
Conversely, Mr Ryan relied on a decision of the predecessor Tribunal, which found that the section did not apply to the commencement or continuation of proceedings in the Australian Industrial Relations Commission. Mr Ryan also argued that:
- FWA ought to exercise its discretionary power to insist on the exercise of jurisdiction
- the FWA Proceedings had utility because an order for reinstatement would enable him to access the Commonwealth Government General Employee Entitlement and Redundancy Scheme (GEERS).
On 9 November 2012 Commissioner Jones refused the Administrators' application for an adjournment and allowed both unfair dismissal applications to be heard jointly for the following reasons:
- Section 440D of the Corporations Act does not apply to unfair dismissal proceedings conducted by FWA
- There was a potential prejudice to the Applicants if the FWA Proceedings were adjourned until after the s439A creditors' meeting. A finding of unfair dismissal, followed by an order for reinstatement, would mean that the Applicants would be eligible to a payment under GEERS. They would not be eligible if AMG was to be voluntarily wound up. If the creditors resolved to voluntarily wind up AMG at the s439A creditors' meeting, section 500 of the Corporations Act would prohibit the unfair dismissal applications from being dealt with by FWA (except by leave of the Court).
Commissioner Jones acknowledged that the Administrators lacked resources, the merits of the Applicants' claims had not been tested and that an order for reinstatement could be remote. Ultimately, FWA held that no matter how remote an order for reinstatement may be, an adjournment could result in real prejudice to the Applicants.
Implications for employers
This decision is a useful guide for employer-companies who are considering terminating employees prior to voluntary administration. Employers should remember that:
- employees do not automatically lose their jobs when a business goes into voluntary administration. If employees continue to work for the business, it is the Administrator who must pay their wages
- terminating employees before becoming insolvent could later result in the insolvent employer and Administrator directing resources (that would have otherwise been directed towards the survival of the business) towards appearing in and defending litigation in FWA.
This decision also serves as a reminder to Administrators that FWA proceedings will not be stayed under section 440D of the Corporations Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.