FEDERAL COURT OF AUSTRALIA

McCluskey v Karagiozis [2002] FCA 1137

CORPORATIONS – application by administrators for directions concerning the validity of the transfer of employment of employees between companies in a corporate group as part of a corporate restructure – whether employees expressly or impliedly assented to the transfer – whether the employees remained employees of the pre-restructure companies – whether employees are creditors of the pre-structure companies in respect of their employee entitlements

Corporations Act 2001 (Cth) ss 447D(1)

Federal Court of Australia Rules 1977 (Cth) O 6 r 13

Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 – applied

IN THE MATTER OF COOGI NOMINEES PTY LTD (Administrators Appointed)

ACN 005 267 158 and others (according to the Schedule attached)

PETER DAMIEN McCLUSKEY AND GEORGE GEORGES v KETTY KARAGIOZIS, DONG IL CORPORATION AND COOGI CASA PTY LTD (ACN 004 930 571)

V3152 OF 2002

MERKEL J

12 SEPTEMBER 2002

MELBOURNE

IN THE MATTER OF COOGI NOMINEES PTY LTD (Administrators Appointed)

ACN 005 267 158 and others (according to the Schedule attached)

THE COURT ORDERS THAT:

1.             For the purposes of the administration of each of the companies in the schedule attached including, but not limited to, the convening and holding of meetings of creditors of those companies and voting at those meetings:

(a)        each employee, apart from Mrs Jaqueline Miller, identified in the schedule annexed to the affidavit of Craig Charles Hunter sworn 9 September 2002 as annexure “CH 8” (“the Schedule”) as having been employed by Coogi Nominees Pty Ltd at 1 March 2000 and employed by CA Manufacturing Pty Ltd, Coogi Australia Pty Ltd, Coogi Australia Retail Pty Ltd or Coogi Holdings Pty Ltd as at 3 July 2002, is to be treated as having continued to be employed by Coogi Nominees Pty Ltd (administrators appointed) at all material times since commencing employment with that company;

(b)       each employee identified in the Schedule as having been employed by Coogi Casa Pty Ltd at 1 March 2000 and employed by Coogi Australia Pty Ltd as at 3 July 2002, is to be treated as having continued to be employed by Coogi Nominees Pty Ltd (administrators appointed) at all material times since commencing employment with that company;

(c)        each employee, apart from Mrs Mardi Holton, identified in the Schedule as having been employed by Coogi Connections Pty Ltd at 1 March 2000 and employed by Coogi Australia Retail Pty Ltd as at 3 July 2002, is to be treated as having continued to be employed by Coogi Connections Pty Ltd (administrators appointed) at all material times since commencing employment with that company; and

(d)       Mrs Mardi Holton, being an employee identified in the Schedule as having been employed by Coogi Connections Pty Ltd at 1 March 2000 and employed by Coogi Australia Retail Pty Ltd as at 3 July 2002, is to be treated as having continued to be employed by Coogi Nominees Pty Ltd (administrators appointed) at all material times since commencing employment with that company.

2.             (a)        The costs of all parties of this application be costs in the administration of Coogi Nominees Pty Ltd (administrators appointed);

(b)               The costs are to be calculated on the basis that they are to include all costs except in so far as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the parties will be completely indemnified for their costs.

3.             Liberty is reserved to the plaintiffs to apply to the Court for an order that the costs referred to in para 2 of these orders be paid by a non-party.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

SCHEDULE

COOGI NOMINEES PTY LTD (Administrators Appointed) (ACN 005 267 158)

COOGI HOLDINGS PTY LTD (Administrators Appointed) (ACN 091 080 581)

CA MANUFACTURING PTY LTD (Administrators Appointed) (ACN 091 080 894)

COOGI AUSTRALIA PTY LTD (Administrators Appointed) (ACN 091 081 113)

COOGI AUSTRALIA RETAIL PTY LTD (Administrators Appointed) (ACN 091 080 750)

COOGI IP PTY LTD (Administrators Appointed) (ACN 060 149 902)

COOGI CONNECTIONS PTY LTD (Administrators Appointed) (ACN 005 309 571)

IN THE MATTER OF COOGI NOMINEES PTY LTD (Administrators Appointed)

ACN 005 267 158 and others (according to the Schedule attached)

REASONS FOR JUDGMENT

1                     The present case affords an example of the dangers of corporate restructures that are implemented to suit the interests of the controllers in disregard of the existing employee entitlement rights of the employees, without whom the corporations would have little or nothing in their business to restructure.

2                     The facts are remarkably simple.  On 2 March 2000 the controllers of the Coogi group of companies decided to restructure the affairs of a number of companies in the group.

3                     The companies employing staff that were involved in the restructure were:

(a)        Coogi Nominees Pty Ltd (“Nominees”);

(b)        Coogi Holdings Pty Ltd (“Holdings”);

(c)        CA Manufacturing Pty Ltd (“Manufacturing”);

(d)        Coogi Australia Pty Ltd (“Australia”); and

(e)        Coogi Australia Retail Pty Ltd (“Retail”);

(f)         Coogi Connections Pty Ltd (“Connections”)

4                     The aspect of the restructure that is before the Court is the purported transfer of the employment of approximately 240 employees employed by the pre-restructure employer in the Coogi group to the proposed post-restructure employer in the Coogi group (“the transferred employees”).  The reallocation of the employees was intended to be as follows:

5                     On 3 July 2002 the plaintiffs (“the administrators”) were appointed as administrators of each of the pre-restructure and post-restructure companies other than Coogi Casa Pty Ltd (“Casa”).  It appears that the post-restructure companies have no assets of substance and will be unable to pay the transferred employees their employee entitlements, which are said to total in excess of $2,500,000.

6                     Although the post-restructure companies accepted the employment of the transferred employees and paid salaries, taxes and other payments in respect of those employees, the majority of whom were women from non-English speaking backgrounds performing largely unskilled work, the employees were never consulted about the cessation of their employment with their pre-restructure employer or about the commencement of their employment with their post-restructure employer.  It appears that the only information received by the employees about their new employer was the appearance of its name on the pay-slips and group certificates issued since 2 March 2000.

7                     The employment transfers raise issues of some difficulty for the administrators who are required to ascertain for the purposes of the administration whether the transferred employees are creditors of the pre-restructure or of the post-structure companies in respect of their employee entitlements.  In order to resolve that question the plaintiffs commenced a proceeding in the Court pursuant to s 447D(1) of the Corporations Act 2001 (Cth) for directions as to which of the companies in the Coogi group is to be treated as the employer of the transferred employees for the purposes of the administration.

8                     On 23 August 2002 the Court made orders pursuant to O 6 r 13 of the Federal Court of Australia Rules 1977 (Cth) appointing an employee (“the first defendant”) to represent the interests of the transferred employees and creditors of the Coogi companies in administration whose interests will or may be adversely affected if the transfer is held to be effective, and a creditor (“the second defendant”) to represent the interests of creditors of the Coogi companies in administration whose interests will or may be adversely affected if the transfer is held to be ineffective.  Casa was also joined as a party to the proceeding as it was involved in the restructure but is not in administration.  The Court ordered that the costs of the representative parties be on an indemnity basis and be costs in the administration.

9                     At the hearing the Australian Securities and Investments Commission was granted leave to intervene and all of the parties were represented by counsel.

10                  The substantial body of undisputed evidence filed by the parties revealed that the transferred employees were not informed about the proposal to transfer their employment nor was their assent to the transfer sought or obtained.

11                  The law is clear.  As was stated by Lord Atkin in Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 (“Nokes”) at 1026 there is no power in an employer

“…to transfer a man without his knowledge and possibly against his will from the service of one person to the service of another.  I had fancied that ingrained in the personal status of a citizen under our laws was the right to choose for himself whom he would serve: and that right of choice constituted the main difference between a servant and a serf.”

12                  Viscount Simon L.C. stated at 1020 that it was a fundamental principle of the common law that:

“…a free citizen, in the exercise of his freedom, is entitled to choose the employer whom  he promises to serve, so that the right to his services cannot be transferred from one employer to another without his assent.”

13                  In the present case the employment of the transferred employees was transferred to the post-restructure companies without the express or implied assent of the employees.  In those circumstances it must follow that, in so far as their contractual relationship with their employer was concerned, their employment with their pre-restructure employer did not cease and their employment with their post-restructure employer did not commence.  Accordingly, subject to certain exceptions, it is appropriate to make orders giving effect to that conclusion.

14                  There are two individual exceptions.  It appears that Mrs M Holton’s employment was always by Nominees and, contrary to the corporate records, she was not employed as at 1 March 2000 by Connections.  The other exception relates to Mrs J Miller who was Coogi’s Human Relations Officer and in that capacity, unlike the other employees, she was aware of the restructure.  Prior to the restructure Mrs Miller was employed by Nominees.  In the restructure her employment was transferred to Holdings.  As there is some doubt concerning her position it was common ground that it was better that her status be left for separate decision by the administrators.

15                  The other issue that arose concerned Casa’s employees.  Although they were purportedly transferred from Casa to Australia in the restructure the evidence is that all but two of the employees were employed by Nominees at the time of the restructure.  The situation concerning the two employees is less clear but I infer that their situation is no different to that of the other Casa employees.  The orders should therefore reflect that conclusion.

16                  Finally, the parties have been put to a great deal of expense, which will have to be borne by creditors of the Coogi companies in administration, apparently because of the imprudent conduct of Coogi’s controllers, who were not represented in the present proceeding.  However, on the material presently before the Court the controllers appear to have pursued their own interests in disregard of the entitlements and interests of their long serving and loyal employees by transferring the employment of the employees, and the responsibility for their employee entitlements, to shell companies thereby treating those employees as if they were serfs, rather than free citizens entitled to choose their own employer.  I have made these observations as, although I have held the transfers to be ineffective, there may be a basis in law for the Court to order that those responsible for the making of the ineffective transfers should be liable for the costs involved in clarifying that situation.  As that aspect of the matter has not been explored I propose to do no more than raise that issue and reserve liberty to the administrators to apply in that regard.

Associate:

Dated:              12 September 2002