Australia: Administrators Forced to Deal with Unfair Dismissal Claims


Two employees of AMG Shared Services Pty Ltd (a company within the Australian Music Group Holdings Pty Ltd group of companies (AMG)) had their employment terminated for misconduct earlier this year. On 24 July 2012 and 1 August 2012 respectively the employees brought unfair dismissal claims against AMG in Fair Work Australia (FWA). On 23 August 2012 each of the companies in the AMG was placed into administration following which receivers and managers were appointed.

FWA Decision

On 9 November 2012 Commissioner Jones heard the Administrators' objection to the continuation of the unfair dismissal claims whilst AMG is under administration in Letizia v Australian Music Group t/as Allans Billy Hyde Music [2012] FWA 9609. The Administrators' objection was based on section 440D of the Corporations Act 2001 (Cth) which states that during the administration of a company a proceeding in a court cannot be begun or proceeded with without the administrators' written consent or leave of the Court.

The issue before Commissioner Jones was whether FWA is a "court" for the purposes of section 440D.

In finding that FWA was not a "court" and that the employees could continue with their unfair dismissal claims, Commissioner Jones relied heavily on the Australian Industrial Relations Commission (AIRC) full bench decision of Smith and Ors v Trollope Silverwood and Beck Pty Ltd (in liquidation) (2006) 142 IR 137 (Smith). In Smith the AIRC found that it was not a "court" for the purposes of section 471B of the Corporations Act because a "court" was a body capable of being invested with the judicial power of the Commonwealth and there was no specific indication in the legislation to suggest an intention to include the AIRC.

Following the reasoning of the AIRC in Smith, Commissioner Jones found that FWA's jurisdiction includes making workplace determinations, determining applications for unfair dismissal remedy, and facilitating the making and approval of enterprise agreements. As such Commissioner Jones found FWA exercises predominantly arbitral powers and in doing so may be required to take into account the public interest. Based on this, Commissioner Jones concluded FWA is not a "court".

Purpose of section 440D

FWA's decision appears to be in direct conflict with the purpose of the administration of a company, which is to maximize the chances of the company continuing; or if that is not possible, to result in a better return for the company's creditors. Section 440D is designed to facilitate this by enforcing a moratorium over the company whilst the administration continues.

To allow an unfair dismissal application to proceed detracts time, energy and costs from the true purpose of the administrators. The adverse affect on AMG (and its creditors) is exacerbated by the circumstances of this case, as mentioned by Commissioner Jones at the end of his decision, "I accept the Administrators presently lack resources and that events are occurring apace and that liquidation may occur sooner than expected and that, in these circumstances, costs in preparation may be thrown away."

Conflicting Court Decisions

As the Smith decision was a decision of the full bench of the AIRC, Commissioner Jones noted that he felt bound to follow this decision as he was deciding this matter as a single member of the FWA. However, both Federal and State Courts have handed down judgments with an alternative conclusion. The Federal Court in Australian Liquor, Hospitality and Miscellaneous Workers Union v Home Care Transport Pty Ltd [2002] FCA 497 (Home Care), the Supreme Court of Western Australia in Helm v Hansley Holdings Pty Ltd (In liquidation) [1999] WASCA 71 and the Supreme Court of New South Wales in Brian Rochford Ltd (Administrators appointed) v TCFU (Unreported judgment, 30 November 1998) came to a different conclusion by adopting a purposive approach to interpreting the legislation. In these cases the AIRC, the Western Australia Industrial Relations Commission and the Industrial Relations Commission of New South Wales respectively were found to be "courts".

In his decision in Home Care Merkel J noted that he found it difficult to discern any reason for excluding the AIRC. Merkel J also referred to the adverse affects not including the AIRC as a "court" may have on unsecured creditors.

Should the full bench of FWA agree with Commissioner Jones's sentiments that it is bound to follow the AIRC decision of Smith, it may take an appeal to State or Federal Courts by an administrator to finally settle this issue. Given the purposes of section 440D of the Corporations Act and administrations themselves, and the State and Federal case law on this point (as opposed to tribunals adjudicating on their own jurisdictions) it would appear entirely possible that a State or Federal Court would find that FWA exercises appropriate powers to fall within the definition of a "court" and consequently applications before it cannot proceed against companies in administration without administrator consent or leave of a Court.

FWA Rejects Administrators Alternative Argument

Commissioner Jones also rejected the Administrators' alternative argument, that if the unfair dismissal applications were to proceed they should be stayed until after the creditors meeting. Commissioner Jones decided that as the outcome of the creditors meeting may be to wind up AMG he could not allow this stay as it may adversely affect the employees' rights to seek payment under Government General Employee Entitlements (GEERS).

GEERS allows an employee to claim for unpaid annual and long service leave as well as capped amounts for payment in lieu of notice and redundancy where employees lose their jobs because of the liquidation of their employer. Should the employees be successful in their claims against AMG the remedy may be reinstatement. If the employees were reinstated they may have claims under GEERS along with the other employees of AMG who lost their jobs because of the liquidation.

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.

Kemp Strang has received acknowledgements for the quality of our work in the most recent editions of Chambers & Partners, Best Lawyers and IFLR1000.

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Nick Noonan
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