Insolvency of employers and the fair work system

It is not unknown for an employer to become insolvent and to seek to argue in fair work cases that proceedings such as unfair dismissal and general protections contraventions cannot proceed. This is commonly the position in cases in the courts, but not necessarily so in the Fair Work Commission, which is not regarded as a court.Here is a passage from a recent case in the Fair Work Commission which deals with the legal position and in particular the relevant provisions of the Corporations Act.

“Section 440D of the Corporations Act provides as follows:

SECT 440D – Stay of proceedings
(1)  During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:

(a)  with the administrator’s written consent; or
(b)  with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

(2)  Subsection (1) does not apply to:

(a)  a criminal proceeding; or
(b)  a prescribed proceeding.

Section 471B of the Corporations Act reads as follows:

‘SECT 471B – Stay of proceedings and suspension of enforcement process
While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:

(a)  a proceeding in a court against the company or in relation to property of the company; or
(b)  enforcement process in relation to such property;

except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.’

In Smith et al v Trollope Silverwood & Beck Pty Ltd (In liquidation) [PR940508] (‘Smith’) the Full Bench of the Australian Industrial Relations Commission (as the Commission was then known) considered whether the Commission had jurisdiction to hear and determine an unfair dismissal application in circumstances where the respondent employer was in liquidation and the applicant employee had not obtained the leave of a court of competent jurisdiction to commence or proceed with the application. In short, the Full Bench considered whether the Commission was a ‘court’ for the purposes of s 471B and consequently s 440D of the Corporations Act. At paras [7]-[10], the Full Bench said:

‘[7] Section 471B includes the terms “court” and “Court”. Each of these terms is defined in s.9 of the Corporations Act. Section 9 provides that unless the contrary intention appears, “court” and “Court” have the meanings given by s.58AA. Section 58AA relevantly provides:

“(1) Subject to subsection (2), in this Act:

court means any court.
Court means any of the following courts:

(a) the Federal Court;
(b) the Supreme Court of a State or Territory;
(c) the Family Court of Australia;
(d) a court to which section 41 of the Family Law Act 1975 applies because of a Proclamation made under subsection 41(2) of that Act.

(2) Except where there is a clear expression of a contrary intention (for example, by use of the expression “the Court”), proceedings in relation to a matter under this Act may, subject to Part 9.7, be brought in any court.”

[8] As indicated, pursuant to s.9 of the Corporations Act “court” has the meaning it bears in s.58AA of the same Act unless the contrary intention appears. The first question is, therefore, what meaning does the term “court” bear in s.58AA?
[9] It seems clear that in s.58AA, the terms of which we have just set out, “court” means a body capable of being invested with the judicial power of the Commonwealth. In other words, the term is confined in meaning to Federal and State courts. This conclusion arises primarily from the terms of s.58AA(2). Proceedings in relation to a matter under the Act would require to be brought in a curial body exercising judicial power. It is beyond argument that the Commission is not a body capable of exercising the judicial power of the Commonwealth: R v Kirby; Ex parte Boilermakers’ Society of Australia; Miller v University of New South Wales. If the term “court” is to be given its defined meaning it excludes the Commission. Therefore the Commission is not a court within the definition of that term in s.9. This was the conclusion reached by a justice of the Federal Court of Australia in Australian Liquor, Hospitality and Miscellaneous Workers Union v Home Care Transport Pty Ltd. We respectfully agree.
[10] It follows from the terms of s.9 that the expression “any court” in s.471B includes only courts capable of exercising the judicial power of the Commonwealth, unless the contrary intention appears. Does an intention appear, either in s.471B itself or from the statutory context, that in s.471B “court” includes the Commission?’ (references omitted)

In respect to the question posed above, the Full Bench concluded at para [20]:

‘[20] If the legislature had intended to make proceedings in the Commission subject to the leave requirement it could have done so by express provision. An example of such a provision may be found in s.5 of the Suitors’ Fund Act 1951 (NSW) which defines court in these words: “includes such tribunals or other bodies as are prescribed.”’

The ratio in Smith has been consistently applied by the Commission in appropriate cases. There is no basis to conclude that the Commission is a ‘court’ for the purposes of s 440D or 471B of the Corporations Act. But that may not be the end of the matter in the context of the present circumstances.

Section 500 of the Corporations Act serves as a statutory bar to civil proceedings being proceeded with, or commenced except, by leave of a Court, in specific circumstances. The section reads as follows:

‘SECT 500 – Execution and civil proceedings
(1)  Any attachment, sequestration, distress or execution put in force against the property of the company after the passing of the resolution for voluntary winding up is void.
(2)  After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.
(3)  The Court may require any contributory, trustee, receiver, banker, agent, officer or employee of the company to pay, deliver, convey, surrender or transfer forthwith or within such time as the Court directs to the liquidator any money, property of the company or books in his, her or its hands to which the company is prima facie entitled.’

In Ramirez v Inner West Skills Centre [2015] FWC 7983, the Commission was able to deal with an unfair dismissal application after the Supreme Court of NSW granted leave (on terms) for the applicant to proceed with her application. There is no doubt that unfair dismissal proceedings in the Commission are civil proceedings for the purposes of s 500(2) of the Act; see: Woolley v Glenjac Pty Ltd [2014] FWC 7833 at [17].

In Clifford v S & N Civil Constructions Pty Ltd [2013] FWC 235 (‘Clifford’), SDP Richards considered the interaction of the above sections of the Act and said at paras [21]-[32]:

‘[21] Section 500 of the Corporations Act provides a complete bar to the commencement of any action or other civil proceedings proceeding in respect of a Company which has entered into voluntary winding up.

[22] Both ss.471B and 500 of the Corporations Act relate to circumstances in which a Company is being wound up.

[23] The difference between the provisions is that s.500 of the Corporations Act applies when a Company is being wound up voluntarily, and s.471 of the Corporations Act applies when a Company is being wound up involuntarily, by a court initiated application or otherwise.

[24] Section 440D of the Corporations Act, by contrast, deals with the circumstances in which a Company has moved into administration voluntarily, which provides for a more gradual process of considering the prospects of the business before moving to any future resolution of the Company’s affairs through a DOCA or the handing back of the business to the original Director(s). Of course, a DOCA may result in the Company being wound up, in which case s.500 of the Corporations Act would have effect from the date the DOCA was executed or took effect.

[25] But does s.440D of the Corporations Act represent a bar to proceedings against a company after such time as it moves in voluntary administration?

[26] In the current circumstances, section 440D of the Corporations Act appears to be a relevant provision. This is because S&N Constructions have moved into voluntary administration.

[27] Section 440D of the Corporations Act generally proscribes a proceeding in a court against the Company proceeding other than with the Administrators’ consent or with the leave of the court.

[28] However, section 440D of the Corporations Act – seemingly – does not represent a bar to the Applicant lodging his application under s.394 of the Act. The reason for this is as follows.

[29] A Full Bench of the Australian Industrial Relations Commission (as it then was) has determined (in the decision in Smith and Ors v Trollope Silverwood and Beck Pty Ltd. (Re: Smith)) that the reference to a court in section 471B of the Corporations Act does not include a reference to what was then the Australian Industrial Relations Commission.

[30] While the Full Bench of the AIRC in Re: Smith was concerned with circumstances relating to s.471B of the Corporations Act (which concerns a compulsory winding up), it nonetheless made findings in respect of whether or not a proceeding in a court was akin to a proceeding in an administrative tribunal, such as the Australian Industrial Relations Commission, as it then was.

[31] The Full Bench determined that the Australian Industrial Relations Commission was not a court, and therefore s.471B of the Corporations Act did not present a bar to a proceeding being commenced in that Commission:

[20] If the legislature had intended to make proceedings in the Commission subject to the leave requirement it could have done so by express provision. An example of such a provision may be found in s.5 of the Suitors’ Fund Act 1951 (NSW) which defines court in these words: “includes such tribunals or other bodies as are prescribed.” (references omitted)

[32] It appears to follow that a similarly worded provision in respect of s.440D of the Corporations Act (which concerns a company in voluntary administration) would not exclude the jurisdiction the Fair Work Commission. But I do make one observation in passing, however.’

See also: Letizia [2012] FWA 9609.

From the information I have before me, the relevant circumstances identified by SDP Richards in Clifford are not dissimilar from those in the present proceedings in that:

  • R & R Poultry Pty Ltd entered into voluntary administration on 11 April 2017;
  • Pilot Partners were appointed as Administrators the same day;
  • a meeting of creditors was held on 21 April 2017 and a further meeting is to be held before 23 May 2017; and
  • the Company has not been wound up and is not in liquidation.

As the respondent is in voluntary administration, as contemplated by s 440D of the Corporations Act, and the Commission is not a Court for the purposes of that section, there is no statutory bar to Ms Crowe proceeding with her application, nor is there a bar to the Commission determining her application, notwithstanding the non-appearance of the Administrators or any person acting on their behalf. I intend to do so.”

Crowe v R and R Poultry Pty. Ltd. t/a R&R Poultry (2017) FWC 2954 1 June 2017 per Sams DP