FEDERAL COURT OF AUSTRALIA

Fair Work Ombudsman v Blue Sky Kids Land Pty Ltd (in liquidation)

[2020] FCA 718

ORDERS

THE COURT ORDERS THAT:

1.    The applicant be granted leave pursuant to subs 500(2) of the Corporations Act 2001 (Cth) to proceed against the first and second respondents.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(Revised from transcript)

KATZMANN J:

1    Blue Sky Kids Land Pty Ltd and Q Fay Trading Company Pty Ltd are related companies. Guo Dong Gu and Fei Rong Yang are directors of both. Ms Yang is the sole shareholder of Blue Sky and she and Mr Gu are the sole shareholders of Q Fay. Blue Sky operated a number of children’s clothing stores. Q Fay imported children’s clothing from the People’s Republic of China to supply to the Blue Sky stores.

2    In this proceeding the Fair Work Ombudsman alleges that, in relation to four employees and in numerous respects, Blue Sky contravened the General Retail Industry Award 2010 (Retail Award), the Fair Work Act 2009 (Cth) (FW Act) and the Fair Work Regulations 2009 (Cth) (FW Regulations). The same allegations are made against Q Fay in the alternative owing to what the Ombudsman described as “a lack of clarity” concerning the identity of the true employer. The allegations are serious. They involve, amongst other things, failing to pay minimum wages; penalty and overtime rates; superannuation contributions; annual leave and leave loading; failing to give notice of termination or payment in lieu; failing to make and keep employee records as prescribed by the FW Regulations, making and keeping misleading employee records; intentionally obstructing a Fair Work Inspector by ordering that timesheets be destroyed; producing to a Fair Work Inspector documents that were known to be false or misleading; threatening to dismiss an employee for exercising her right to participate in an interview with a Fair Work Inspector; and threatening to dismiss an employee in order to engage her as a contractor to perform the same or substantially the same work.

3    Mr Gu and Ms Yang are alleged to be knowingly concerned in those contraventions.

4    The remedies the Ombudsman seeks include declarations, pecuniary penalties, compensation for the underpayments and an order requiring the responsible company to make superannuation contributions to the employees’ nominated superannuation funds.

5    The proceeding was commenced on 6 September 2019. It is still at a relatively early stage. Defences were filed on behalf of all respondents in November 2019 and an amended defence was filed on behalf of Blue Sky and Q Fay (the companies) on 10 February 2020. The Ombudsman filed an interlocutory application to strike out parts of the amended defence on 28 February 2020, which was listed for hearing on 24 March 2020. In the meantime, on 13 March 2020, the companies resolved to go into voluntary liquidation.

6    Ordinarily, a person who claims to be owed money by a company in liquidation is required to lodge a verified proof of debt with the liquidator, who admits or rejects the claim wholly or in part, and from whom an appeal lies. Section 500(2) of the Corporations Act 2001 (Cth) relevantly provides that, after the passing of the resolution for voluntary winding up, no action or other civil proceeding against a company may be proceeded with except by leave of the Court.

7    On 21 April 2020, the Ombudsman filed an interlocutory application seeking leave to proceed against both companies. The application was supported by an affidavit affirmed on 21 April 2020 by Victoria Erin Cumner, a lawyer in the Office of the Ombudsman, which was read on the hearing of the application. The facts which I go on to recite are drawn from that affidavit and the conclusions I reach are based on the information it contains. A second affidavit affirmed by Ms Cumner on 21 May 2020, was also read. Its purpose was to demonstrate that the application had been served on Mr Gu and Ms Yang. On the basis of the information disclosed in that affidavit, I am satisfied that Mr Gu and Ms Yang were served at their last known address with the application, Ms Cumner’s affidavit of 21 April 2020, and the Ombudsman’s written submissions. I am also satisfied that reasonable attempts have been made to contact them to ensure that they were aware of the application. Neither Mr Gu nor Ms Yang appeared at the hearing and neither informed the Ombudsman or the Court that he or she opposed the order sought in the application.

8    For the following reasons, leave should be granted.

9    The Corporations Act is silent as to the factors to be taken into account in the exercise of the Court’s discretion to grant leave. The principles established by the case law which guide its exercise were summarised by Black J in In the matter of DSHE Holdings Limited (recs and mgrs apptd) (in liq) [2018] NSWSC 82 at [18]:

[T]he purpose of this section is to prevent a company’s assets being dissipated by unnecessary litigation, and an applicant for leave will be required to show why it should not be left to prove its debt in the winding up: Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314; (1983) 7 ACLR 669; (1983) 1 ACLC 742; HFPS Pty Ltd (Trustee) v Tamaya Resources Ltd (in liq) (No 1) [2016] FCA 442 at [18]. The claimant must establish that the claim has a solid foundation and gives rise to a serious question to be tried; factors relevant to the exercise of the court’s discretion may include the degree of complexity of legal and factual issues and the prospect that a proof of debt will be rejected; and the power to grant leave is discretionary and other factors may be relevant to its exercise…

See also: Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq) (Receivers and Managers Appointed); In the Matter of Forge Group Ltd (In Liq) (Receivers and Managers Appointed) [2016] FCA 1471 (Foster J) at [15].

10    The interests of creditors are important but not determinative: Vagrand Pty Ltd (In liquidation) v Fielding (1993) 41 FCR 550 at 554–555 (Wilcox, Burchett and Beazley JJ).

11    As I observed in Fair Work Ombudsman v Foot & Thai Massage Pty Ltd (in liquidation) [2019] FCA 1601 at [15], additional factors need to be taken into account in a proceeding such as this, where the applicant is a regulator with important statutory responsibilities to be exercised in the public interest, and when civil penalties are claimed, the principal purpose of which is deterrence, including general deterrence.

12    The Ombudsman has clearly demonstrated why she should not be left to prove her contingent debt in the winding up.

13    First, there are serious questions to be tried as to whether the conduct of one or other of the companies contravened the relevant provisions of the FW Act and Regulations. It is unnecessary on this application for the Ombudsman to establish a prima facie case: Vagrand at 556.

14    Ms Cumner’s affidavit does not disclose the factual basis for the allegations made in the substantive application. Nevertheless, it is apparent on the face of the Ombudsman’s pleading that the application has not been brought frivolously. It is evident that the proceeding was commenced after an extensive investigation by the Ombudsman’s office. The Ombudsman’s lawyer has certified that the factual and legal materials available to him provide a proper basis for each allegation. There is no reason to believe that the Ombudsman is not in a position to prove those allegations. In the application to strike out parts of the amended defence, Ms Cumner filed an affidavit which indicates that the Ombudsman is in possession of a number of documents from which it is reasonable to infer that there is some support for at least some of the allegations.

15    Further, with respect to the general protection claims, the Ombudsman has the benefit of the statutory presumption in s 361 of the FW Act that the adverse action was taken for the reasons she alleged, so that the burden is on the respondents to prove otherwise. Similarly, the Ombudsman’s case relating to contraventions of the Retail Award occurring on or after 15 September 2017 is assisted by the passage of the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth) (the Amending Act), which commenced on that date. Where the employer failed to comply with the record-keeping obligations in subs 535(1) or (2), the regulations requiring the records to be made available for public inspection, or the obligation in subs 536(1) or (2) to give employees pay slips, unless the employer proves it had a reasonable excuse for not doing so, s 557C places the burden on the employer of disproving those allegations. See Sch 1 Pt 7 cl 24A and Pt 8 cl 4 of the Amending Act.

16    Second, declaratory relief and civil penalties are not available through the proof of debt process. While the evidence from the liquidator annexed to Ms Cumner’s affidavit currently suggests that the companies have very limited assets, the companies’ capacity to pay any penalties is irrelevant to the question of whether leave should be granted (Australian Competition and Consumer Commission v Birubi Art Pty Ltd (No 2) [2018] FCA 1785 at [14] per Perry J) or, for that matter, on whether penalties may be imposed (Australian Competition and Consumer Commission v Leahy (No 2) [2005] FCA 254; 215 ALR 281; ATPR ¶42–051 at [11] per Merkel J).

17    Third, this is not a dispute which only affects the parties. By the very nature of its subject matter, the application raises matters of public importance with implications well beyond the parties.

18    Fourth, there is a significant public interest in deterring companies from engaging in conduct of the nature alleged in the amended statement of claim.

19    Fifth, it would be incongruous not to proceed against the companies. As Mortimer J observed in Australian Competition and Consumer Commission v Artorios Ink Co Pty Ltd [2013] FCA 753 at [10]:

It is … incongruous that the principal entity towards whom the alleged contraventions are directed, and against whom in this context the relevant prohibitions in the ACL are intended to operate, should escape liability by reason of voluntary liquidation, while proceedings continue only against those whose liability is dependent upon the alleged conduct of the corporation.

20    Sixth, the liquidator consents to the application.

21    Seventh, there is no opposition from the creditors. The largest creditor of both companies is the Australian Taxation Office (ATO) and it advised the Ombudsman that it had no intention of opposing the leave application. Icare, another creditor of both companies, consents to the leave application. Stockland Trust Management, a creditor of Blue Sky, does not oppose the application. The Ombudsman has taken steps to ascertain the attitude of the other creditors, which include the Australia and New Zealand Banking Group Limited, Ren Zhou Lawyers who formerly represented all the respondents, and Toyota Finance Australia Limited, but has had no response to her inquiries. One can only infer from the lack of response that none of those entities objects to the application.

22    Eighth, a significant proportion of the compensation claimed by the Ombudsman relates to alleged underpayment of wages and other entitlements under the Retail Award which has priority over the claims of the majority of other unsecured creditors in insolvency, including the ATO: see Corporations Act, s 556(1).

23    In all the circumstances, it is just and proper that the Ombudsman be allowed to proceed with her case against the companies without further delay. Certainly, the considerations that tell in her favour outweigh any detriment to the creditors. Leave should therefore be granted.

Associate:

Dated:    25 May 2020

SCHEDULE OF PARTIES