ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited;... [2008] FCA 2009 | Case summary

SCHEDULE 1 All in Administration and with Company Name A.B.C. Learning Centres Limited Child Care Centres Australia Limited Hutchinson's Child Care Services Limited Kids Campus Limited Peppercorn Management Group Limited A.B.C. Canadian Holdings Pty Limited A.B.C. Corporate Care Pty Limited A.B.C. Developmental Learning A.B.C. Early Childhood Training A.B.C. Education Services Pty Limited A.B.C. Employment Services Pty Limited A.B.C. European Holdings No.1 Pty Limited A.B.C. European Holdings No.2 Pty Limited A.B.C. European Holdings No.3 Pty Limited A.B.C. Land Holdings Pty Limited A.B.C. Learning Centres Finance Pty Limited A.B.C. New Ideas Pty Limited A.B.C. Queensland Pty Limited A.B.C. USA Holdings Pty Limited A.B.C. USA Property Holdings No.1 Pty Limited A.B.C. USA Property Holdings No.2 Pty Limited Childcare Development Solutions DPPA Pty Limited Flel Pty Limited FutureOne Pty Limited HCCS Operations Pty Limited Kids Campus (W.A.) Pty Limited Kids Campus Australia Pty Limited Kids Campus Holdings Pty Limited Klendo Pty Limited Marshen Pty Limited Peppercorn Holdings No.1 Pty Limited Peppercorn Holdings No.2 Pty Limited Peppercorn Holdings No.3 Pty Limited Peppercorn Holdings No.4 Pty Limited Peppercorn Holdings No.5 Pty Limited Peppercorn Holdings No.6 Pty Limited Premier Early Learning Centres Pty Limited Select Child Care Management Pty Limited Receivers and Managers Appointed ACN 079 736 664 100 250 646 100 493 874 099 815 472 087 155 860 126 839 941 098 738 928 Centres Pty Limited 010 788 502 College Pty Limited 069 159 566 107 310 743 130 442 394 122 710 123 122 710 132 128 132 829 108 964 227 125 820 395 112 237 377 129 029 769 121 360 147 126 641 665 126 641 674 Pty Limited ATF the Childcare Development Solutions Unity Trust 107 241 181 114 743 092 096 172 075 009 221 470 097 846 707 112 150 099 104 407 187 107 379 751 098 366 968 101 400 104 095 599 250 099 074 781 100 679 374 101 236 766 103 201 136 103 210 751 100 831 856 093 925 056

REASONS FOR JUDGMENT 1 The first plaintiffs (the Administrators), were appointed as administrators of the second plaintiffs on 6 November 2008. The second plaintiffs are all companies in a group of companies known as the ABC Learning Group, the holding company of which is ABC Learning Centres Limited. In earlier decisions concerning the administration, I have described the background of the ABC Learning Group, in particular the fact that receivers and managers have been appointed to the companies in the group. 2 Following the appointment of the Administrators, there have been a number of resignations by employees and a number of redundancies have resulted. For example, in November 2008, 248 employees resigned and two employees were made redundant. In December 2008 to date, some 65 head office staff have been made redundant. On 1 January 2009, approximately 100 further staff are expected to be made redundant. At present, the Administrators are unable to estimate the amount that would be payable to those employees by members of the ABC Learning Group. However, it is clear that a significant number of employees have become entitled, and will be entitled, to payment and substantial sums will be required to make the payments to which the employees are and will be entitled. 3 On 15 December 2008, the Administrators received a communication in writing from the Department of Education, Employment and Workplace Relations (the Department). The communication referred to the fact that, as a result of the closure of 55 ABC centres operated by the ABC Learning Group, approximately 100 employees will be terminated on 1 January 2009. The letter also referred to the fact that approximately 250 employees had resigned since the appointment of the Administrators and that there may be further resignations and terminations. The Department's letter observed that those employees may be eligible for assistance under the General Employee Entitlements and Redundancy Scheme (GEERS). 4 On 15 December 2008, arrangements were published by the Department concerning the operation of GEERS (the Arrangements). The Arrangements state that the Australian Government established GEERS as a basic payment scheme for employees' unpaid eligible entitlements, where the employees' employer has been subject to an insolvency event, as defined, and there are insufficient funds or assets available to the employer to pay those entitlements, and no other source of funds is available to pay the entitlements. 5 Relevantly, eligible entitlements are those payable as priority payments under ss 556(1)(e) to (h) of the Corporations Act 2001 (Cth) (the Corporations Act). Eligible entitlements consist of unpaid wages in the three month period prior to the appointment of an insolvency practitioner, unpaid annual leave, unpaid long service leave, pay in lieu of notice up to a maximum period of five weeks and unpaid redundancy pay up to a maximum of 16 weeks. Relevantly, an insolvency event occurs when a provisional liquidator or liquidator has been appointed under the Corporations Act. The claimant's employment must have been terminated due to the appointment of an insolvency practitioner. Insolvency practitioner includes a person appointed to manage the affairs of an insolvent employer, including an administrator or deed administrator. 6 Clause 5 of the Arrangements states that claims will be assessed against the Arrangements and that the relevant decision maker, being the Secretary of the Department or a delegate of the Secretary, will decide all matters relating to claims for payment of eligible entitlements under GEERS. Clause 5(c) makes clear that any advance is made without any legal obligation on the part of the Commonwealth to do so. Clause 5(d) of the Arrangements provides that, where the circumstances of a claim are not provided for in the Arrangements, the Minister may, at his or her absolute discretion, determine matters of eligibility. 7 An insolvency event has not occurred in relation to the ABC Learning Group at this stage. However, the Department's letter of 15 December 2008 goes on to say that the Minister has determined that the circumstances of the ABC Learning Group justify the use of the discretion to allow GEERS assistance to be provided to employees of the ABC Learning Group, prior to what may be the inevitable liquidation of the members of the ABC Learning Group. The Department's letter states that such assistance is subject to appropriate arrangements being put in place to protect the Commonwealth's right to priority repayment of any advances made to former employees of the ABC Learning Group. 8 The letter proposes that the Administrators enter into a deed with the Commonwealth designed to ensure that the Commonwealth is afforded the same right to priority as it would receive in liquidation. The proposed deed is to be subject to conditions precedent that an application is made to the Federal Court for certain directions and orders and such directions and orders are made. 9 Against that background, the Administrators have, by interlocutory process, applied to the Court for directions and orders accordingly. The Commonwealth has also appeared by senior counsel to support the application by the Administrators. 10 In the course of hearing the application, I expressed some reservation as to the operation of cl 5(d) of the Arrangements. As I have said, that clause provides that the Minister may determine matters of eligibility where the circumstances of a claim are not provided for in the Arrangements. At present, no relevant claim has been made, because no insolvency event has occurred in relation to the members of the ABC Learning Group. It is significant, in that regard, that the Arrangements have no statutory force. They simply state administrative arrangements. Payments made under GEERS are payments as a matter of grace by the executive Government of the Commonwealth. Therefore, it appears to me to be open to the Minister to determine that the framework of the Arrangements may apply, in circumstances to which the Arrangements do not in their own terms apply. That is clearly, in my view, what is contemplated by the Department's letter of 15 December 2008. 11 On 27 November 2008, the Court made orders extending the convening period for the purpose of the second meeting of creditors of the ABC Learning Group to 31 March 2009 (see ABC Learning Centres Limited, in the matter of; application by Walker (No 5) [2008] FCA 1947). It is unlikely, therefore, that any of the companies will be placed into liquidation or that a provisional liquidator will be appointed until after that date. 12 The effect of the deed proposed by the Commonwealth is that any advance that may be made by the Department to the Administrators will be a debt of the Administrators. It is proposed, however, that the debt will be treated as if it were a loan made in the circumstances contemplated by s 560 of the Corporations Act. Section 560 relevantly provides that, where a payment has been made by a company on account of wages and the like and the payment was made as a result of an advance of money by a person for the purpose of making the payment, then the person by whom the money was advanced has the same right of priority of payment in the winding up of the company in respect of the money so advanced and paid as the person who received the payment would have had if the payment had not been made. However, the right of priority is not to exceed the amount by which the sum in respect of which the person who received the payment would have been entitled to priority in the winding up has been diminished by reason of the payment. 13 It is contemplated that the Administrators will have no personal liability to repay any advances made by the Commonwealth; they will only be required to make a payment to the Commonwealth in respect of the advances, in the priority specified in s 560, in the event that there are sufficient assets available to make distributions to creditors in the order specified in s 556. Section 556 specifies the order of priority for the payment of the debts and claims described in that provision. 14 The Commonwealth also wishes to exclude the operation of ss 444DA(2) and 444DA(5) of the Corporations Act in relation to advances to be made by the Commonwealth. Section 444DA(1) provides that a deed of company arrangement must contain a provision to the effect that, for the purposes of the application by an administrator of the property of the company coming under his control under the deed, any eligible employee creditors will be entitled to priority at least equal to what they would have been entitled if the property were applied in accordance with ss 556, 560 and 561. However, under s 444DA(2), that rule does not apply if the eligible employee creditors pass a resolution agreeing for the non-inclusion of such a provision or the Court makes an order under s 444DA(5) approving the non-inclusion of such a provision. 15 The Administrators consider that the conditions in the deed proposed by the Commonwealth are reasonable. There are presently no funds available to the ABC Learning Group to meet the employment benefits for employees who have resigned or who have been made redundant. The Administrators consider that it is in the interests of the employees to receive payment of their eligible entitlements as soon as possible and the only means presently available to the Administrators to meet such payments is if funds are advanced by the Commonwealth pursuant to GEERS in the manner that I have briefly described. 16 One of the conditions of the proposed deed is that the Court make an order under s 447A of the Corporations Act, which provides that the Court may make such order as it thinks appropriate as to how Part 5.3A of the Act is to operate in relation to a particular company. There is nothing in that provision that suggests that it should be read down in any way and it is an integral part of the legislative scheme expressed in Part 5.3A. It should be given a broad construction (see Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 at [17] and [24]). The Administrators and the Commonwealth have asked the Court to make an order under s 447A that s 447D operate in relation to the Company as though it authorised the Court to give directions that the Administrators may properly and justifiably execute and give effect to the proposed deed. 17 Unless the Commonwealth is prepared to make the advances contemplated and it does in fact make the advances, it is clear that the employees of the ABC Learning Group will not be paid their eligible entitlements for some considerable time, if at all. The effect of the proposed deed does not prejudice any of the employees of the ABC Learning Group; nor would any other unsecured creditor or secured creditor, if it comes to that, be prejudicially effected. The intention of the proposal is to ensure that the Commonwealth is afforded the priority that the employees would have; that is, that the Commonwealth, in effect, be subrogated to the rights of the employees in the event that there are funds available following the administration, the receivership and in the course of any winding up. The Commonwealth has undertaken to pay the costs of the Administrators for making this application. In all of the circumstances, I consider that it is appropriate to accede to the Administrator's application. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No 6) [2008] FCA 2009

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