Applicant v Respondent

2 In carrying out his duties, the liquidator has ascertained that there may be up to 3000 people who were employed by NPL or related entities who are eligible to entitlements as employees. At the time of his appointment, the liquidator approached the Department of Education, Employment and Workplace Relations (DEEWR) which administers the General Employee Entitlements and Redundancy Scheme (GEERS) for funding of employee entitlements. DEEWR agreed to advance funds to pay employees who fulfilled the GEERS criteria.

3 In order to establish which employees met the GEERS criteria, the liquidator divided the possible employees into 10 categories. In doing so, the liquidator formed a conclusive view that the persons he had categorised in categories 1, 2 and 3 were employees of NPL, and that those in category 9 were not.

4 The liquidator has not, however, been able to conclusively conclude whether or not the persons in the remaining categories 4, 5, 6, 7, 8, and 10 are employees of NPL. Based on the evidence he has collected, he has formed the view that they are employees of NPL and he seeks directions that he is justified in treating them as employees of NPL.[2]

5 The liquidator has also formed the conclusion that NPL was acting as trustee for the NP Trust up to 21 February 2004 and the National Personnel Trust from 22 February 2004 until liquidation.

6 Mr Handberg seeks directions that he is justified in:

(a) treating categories 4, 5, 6, 7, 8 and 10 employees as employees of NPL;

(b) paying any employee entitlements incurred by the NPL up to and including 21 February 2005 out of the assets of the NP Trust and from 22 February 2005, out of the assets of the National Personnel Trust;

(c) causing his costs and remuneration in respect of this application and in respect of his dealings with employees of NPL and their creditor claims to be paid first from the assets of NPL in its own right and then from the trust assets of the NP Trust and the National Personnel Trust in equal amounts.

7 The liquidator relies on his extensive affidavit material.

Power of the Court to give directions under s 511

8 The liquidation of NPL is a voluntary creditors' winding up. Under s 511 (in Part 5.5, Division 4 of the Corporations Act 2001, which deals with voluntary winding up generally), a liquidator may apply to the Court to exercise all or any of the powers that the Court might exercise if the company were being would up by the Court. If the Court is satisfied that the exercise of the power will be "just and beneficial," the Court may accede wholly or partially to any such application on such terms and conditions as it thinks fit, or may make such other order on the application than it thinks just.[3]

9 One such power that the Court might exercise if the company were being wound up by the Court is the power under s 479(3) for a liquidator to apply to the Court for directions in relation to any particular matter arising under the winding up. The right of a liquidator in a voluntary liquidation to avail him or herself of this power was examined by Warren CJ in S & D International (in liq) v MIG Property Services Pty Ltd,[4] where her Honour reviewed the history and purpose of s 511. The Chief Justice concluded that the only qualification is "one of purpose, it must be "just and beneficial", not one of scope." Referring to the right of a liquidator in a voluntary winding up to seek directions from the Court, her Honour said that "as such, it cannot be characterised as more or less limited that the powers the court is able to exercise with respect to a liquidator in a compulsory winding up."[5]

10 In Re G B Nathan & Co Pty Ltd (in liq),[6] McClelland J considered the history and purpose of the power of the Court to provide directions to a liquidator and its relationship to the power of the Court to give similar directions to trustees. Justice McClelland concluded that the power was limited in two fundamental ways. First, that the power may only be exercised to give directions as to how the liquidator should exercise his statutory functions as such, and (secondly) that the power does not enable the Court to determine any rights or liabilities arising from the company's transactions before the liquidation. In other words, the power may not be used to determine any rights or liabilities between creditors or contributories and the company or such rights as between themselves.

11 His Honour said that in addition to providing a means by which the liquidator may obtain advice as to the proper course he or she should take in the liquidation, by obtaining a direction the liquidator is protected from liability for any alleged breach of duty as liquidator to a creditor, contributory, or to the company if he or she has made full and fair disclosure to the Court of all material facts flowing from pursuing the conduct found to be justified.

12 In Re Ansett Australia No 3,[7] Goldberg J held that the Court should not give directions on a decision by the liquidator that merely involved the implementation of a business or commercial decision that raised no legal issues or was not the subject of attack. He said:[8]

This review of the authorities satisfies me that the prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator's or administrator's unease. There must be an issue calling for the exercise of legal judgment.

13 In this case, for the reasons explored below, there are legal issues of substance that the liquidator has had to address, and I find that the power for the Court to give directions has been enlivened.

14 NPL was formed on 1 February 2002. The sole director of NPL and the principal behind the National Personnel Business was Ulysses Vassilopoulos. At the time of NPL's formation, the National Personnel Business was being operated by Mr Vassilopoulos through a different company, National Security Personnel (Aust) Pty Ltd (NSPPL).

15 For the most part, the personnel used by NSPPL to operate the National Personnel Business were employed by Stafford Services Pty Ltd (Stafford) (now in liquidation and the respondent to this application) and supplied to NSPPL on arrangement between Stafford and NSPPL. The principal of Stafford was Franco Cardamone.

16 In or around December 2003, the union to which the majority of the employees belonged issued a notice of non-compliance with the enterprise bargaining agreement (EBA) that governed their work, with the major concern being that the employees were employed by Stafford in circumstances where Stafford was not a party to the EBA.

17 Around this time, Mr Cardamone established the NP Trust for his benefit, and appointed NPL as trustee. In March 2002, Mr Vassilopoulos had previously established the National Personnel Trust and appointed NPL as trustee. The National Personnel Trust was conducted for Mr Vassilopoulos' benefit.

18 In or around February 2004, the National Personnel Business was restructured so that:

(a) NPL, as trustee for the NP Trust, employed the security personnel (taking over the role of Stafford) and existing Stafford employees and entitlements were transferred to the NP Trust; and

(b) NPL as trustee for National Personnel Trust operated the National Personnel Business previous operated by NSPPL.

19 The above structure remained in place until 21 February 2005, when NPL was removed as trustee of the NP Trust (replaced by Greight Pty Ltd, now in liquidation).

20 Following the removal of NPL as trustee of the NP Trust on 21 February 2005:

(a) the new trustee, Greight Pty Ltd, did not provide personnel to NPL;

(b) the National Personnel Business continued being operated by NPL (as before); and

(c) the employees engaged in the National Personnel business continued working as before, with the only difference being that their wages and entitlements were thereafter paid by NPL in its capacity as trustee for the National Personnel Trust.

21 NPL ceased trading on 30 April 2005 and soon thereafter the employees commenced employment directly with the Wilson Group.

Relevant principles where employer is in doubt****[9]

22 Where the identification of an employer is in doubt, the Court, in making similar determinations as is sought here, has taken a wide view of the employer-employee relationship beyond the contractual documentation and has focused on how the parties have conducted themselves in practice and whether the reality of the situation indicates the identity of the employer.[10]

Ultimately, the whole of the circumstances surrounding the employment relationship including the subsequent conduct of the parties is relevant to the assessment to be made by the Court. Of course, documents are relevant but not necessarily determinative. Ultimately the decision rests on the nature of the business in which the relevant employee worked and conversations and conduct at the time of the original engagement of that employee[.]

24 In Re C & T Grinter Transport Services Pty Ltd (in liq),[12] Finn J laid down the following principles for the identification of the employer where there are two or more possible employers:

(a) A contract of service cannot be transferred by one employer to another or novated as between them without the employee's consent;

(b) The totality of the circumstances surrounding the relationships of the various parties including conduct subsequent to the creation of an alleged employment relationship is relevant to the assessment to be made;

(c) Documentation created by one or more of the parties describing or evidencing an apparent employment relationship will be relevant to, but not necessarily determinative of, the true character of that relationship;

(d) In determining the identity of a disputed employer, the Court is entitled to consider "the reality of purported contractual arrangements";

(e) Conversations and conduct at the time of the alleged engagement of the employee are of considerable significance. The beliefs of the employees as to the identity of their employer is admissible and is entitled to weight; and

(f) In cases of the engagement of new employees to work in a business in which a number of separate corporate entities participate otherwise than as partners, it is open to those controlling the business to select which company should be the employer, provided that the selection was consistent with the financial and administrative organisation of the business and was not otherwise a sham.

Were category 4, 5, 6, and 7 employees of NPL?

25 As mentioned above, the liquidator has determined that the employees in categories 1, 2 and 3 were all employees of NPL and therefore entitled to GEERS. The employees within these categories who have submitted claims to GEERS have been paid their entitlements through the GEERS system.

26 In categories 4 and 5 there were 50 and 3 employees respectively. In categories 6 and 7 there were 529 employees. The liquidator initially determined, on the information then available, that the category 4, 5, 6, and 7 employees:

(c) it was inconclusive as to who their employer was.

27 The liquidator has since formed the view that they are employees of NPL, in light of the factors referred to above, specifically:

(a) the employees believe and have indicated to the liquidator's staff that they were employees of NPL;

(b) the employees ultimately reported to and were under the direction of Mr Vassilopoulos, the sole director of NPL;

(c) NPL's bank accounts indicate that the employees were paid by the NPL in its capacity as trustee of the NP Trust up to and including 21 February 2005 and by NPL in its capacity as trustee of the National Personnel Trust from then on; and

(d) other documents have since emerged that indicate that the employees were employees of NPL.

28 The liquidator has exhibited to his affidavits in support of the application extensive evidence to support these factors.

29 On this evidence, I am satisfied that the liquidator is justified in treating the employees in these categories as employees of NPL.

30 In categories 8 and 10 there were 257 and 642 employees respectively. In relation to the employees in categories 8 and 10, the liquidator believes that they were employees of NPL. However, the claims within these categories were not eligible for GEERS for various reasons, including:

(a) the employees were terminated prior to the relevant period in which employees were eligible for GEERS;

(b) the termination of the employees' employment was not due to an insolvency event;

(c) the employee was not lawfully employed in Australia; or

(d) the employee was an "excluded employee" as they were related to the director of the Company.

31 Employees within category 9 (1350 employees) had no outstanding entitlements and were therefore not entitled to any payment from GEERS. The liquidator says that no funds will be advanced to these employees.

32 I accept that the liquidator is justified in treating category 8 and 10 employees as employees of NPL.

33 As indicated above, the liquidator seeks a direction that he is justified in paying any employee entitlements incurred by the NPL up to and including 21 February 2005 out of the assets of the NP Trust and from 22 February 2005, out of the assets of the National Personnel Trust.

34 The liquidator contends that the following factors indicate that the employees were employed by NPL in its capacity as trustee of the NP Trust in the period February 2004 to 21 February 2005, and that all entitlements incurred up to and including 21 February 2005 are payable by NPL in its capacity as trustee of the National Personnel Trust:

(a) Whilst there is some uncertainty regarding how the employees were transferred from Stafford to NP Trust and whether the employees consented to such transfer, it appears that the employees were at least notified of the intention to transfer their employment to NP Trust;

(b) Based on the payroll software system used by Stafford and the Company (AIMS), NPL's books and records, and testimony of former management, it appears employee entitlements were transferred from Stafford to NP Trust in February 2004;

(c) There is some evidence that letters of offer of employment were issued by NPL after February 2004;

(d) There is some evidence that many employees who commenced employment after February 2004 signed TFN Declaration Forms stating their employer as "NP Trust";

(e) Employee wages were paid from the NP Trust bank account during this period;

(f) The financial statements for NP Trust as at 15 February 2005 indicated various employee liabilities, including annual leave, PAYG payable, and payroll tax payable;

(g) Superannuation entitlements were incurred by NPL as trustee for the NP Trust during this period;

(h) Workers' compensation insurance was held by NPL as trustee for the NP Trust during this period;

(i) According to the proof of debt lodged by the State Revenue Office, NPL in its capacity as trustee of the NP Trust incurred a payroll tax liability in the 2004-05 year in the amount of $1.167 m; and

(j) When examining documents provided by former employees (in particular, group certificates, superannuation statements, and other correspondence), the Fair Work Ombudsman concluded that NP Trust appeared to have "employer obligations" towards the employees.

35 In my opinion, having regard to these circumstances and applying the relevant principles, I find that the liquidator is justified in treating the employee entitlements incurred up to and including 21 February 2005 as being payable by NPL in its capacity as trustee of the NP Trust.

36 The liquidator contends that the following factors indicate that the employees were employed by NPL in its capacity as trustee of the National Personnel Trust in the period from 22 February 2005:

(a) During this period, NPL's main activity was acting as trustee of the National Personnel Trust. Accordingly, any employment expenses incurred by NPL during this period were incurred in its capacity as trustee of the National Personnel Trust;

(b) There is some evidence that employees employed after 22 February 2005 signed TFN Declaration Forms indicating that their employer was "National Personnel Trust";

(c) Employee wages were paid from the bank account of NPL as trustee for National Personnel Trust during this period;

(d) From 22 February 2005, superannuation entitlements were incurred by NPL in its capacity as trustee of the National Personnel Trust, as recognised by the ATO in issuing SGC assessment notices to NPL for this period; and

(e) NPL in its capacity as trustee of the National Personnel Trust incurred a payroll tax liability with the State Revenue Office in the 2004-05 year in the amount of $215,774 (as compared with NP Trust's payroll tax liability for the same year in the amount of $1.167 m).

37 In my opinion, having regard to these circumstances and applying the relevant principles, I find that the liquidator is justified in treating the employee entitlements from 22 February 2005 as being payable by the NPL in its capacity as trustee of the National Personnel Trust.

38 Since the commencement of the winding up, the liquidator has kept separate records as to his cost and remuneration incurred in administering each of the two trusts. Accordingly, the liquidator intends to recover costs and remuneration from each of the trusts' assets to the extent that his costs and remuneration relate to each trust and its assets.

39 This approach is consistent with the authorities in relation to a liquidator's right to recover his costs and remuneration from trust assets.[13]

40 However, the costs and remuneration incurred in relation to the employees of NPL are not as easily attributable to one trust or the other for the same reasons that employee entitlements are not easily attributable to one trust or the other.

41 In such circumstances, the Courts have previously held that a liquidator may recover his costs and remuneration from each trust on a pari passu basis. In 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq), Finkelstein J stated:[14]

The liquidator is not entitled to charge the beneficiaries of one trust with the costs and expenses incurred in relation to the other trust. Accordingly, it will be necessary for the liquidator to estimate the costs and expenses incurred insofar as they relate to each trust and only charge those costs to the trust on whose behalf the work was performed. If that estimate is not possible then a pari passu distribution of the costs and expenses will be in order ...

42 The liquidator seeks a direction from the Court that the liquidator would be justified in causing his costs and remuneration in relation to this proceeding and the claims of the employees of NPL be paid first out of the assets of NPL in its own right and then out of the assets of each trust in equal proportion. A similar direction was made by Finkelstein J in Re Sonray Capital Markets Pty Ltd (in liq).[15]

43 Further authority for the proposition that the liquidator is entitled to his costs first out of the assets of NPL is to be found in Re French Caledonia Travel Service Pty Ltd (in liq), where Campbell J noted:[16]

The principle in Berkeley Applegate was applied by McLelland J in Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686-7. McLelland J noted (at 688) that no ready distinction could be drawn:

... between work done and expenses incurred by the liquidator in the winding up, on the one hand, and work done and expenses incurred in administering property held by the company as trustee, on the other hand.

This is because:

... In the first place, it is clearly the duty of the liquidator for the purposes of the winding up to identify the assets of the company, and in particular to ascertain whether particular assets under the control of the company are beneficially owned by the company or by others. Secondly, in fulfilling his function to "do all such ... things as are necessary for winding up the affairs of the company ..." (see s 477(2)(m) of the Corporations Law and cf s 479(4)), the liquidator cannot disregard the fact that the company holds property in trust for others.

Where work done by a liquidator in relation to trust assets may properly be considered as having been done for the purpose of "winding up the affairs of the company", it is I think consistent with general principle that any remuneration and expenses attributable to that work be paid out of the (non-trust) property of the company in accordance with s 556 of the Corporations Law, to the extent that there is such property available. To the extent that there is not sufficient available property, bearing in mind that generally speaking "a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property" (s 545) it would normally be appropriate to apply the principle referred to by Deputy Judge Nugee QC in the passage quoted earlier from Re Berkeley Applegate (Investment Consultants) Ltd (in liq) and make an allowance to the liquidator out of trust assets.

44 As this authority identifies, the critical issue is whether a distinction can be made between the liquidator incurring expenses in winding up NPL, as opposed to incurring expenses in administering the trusts as trustee. In my opinion, such a distinction cannot reasonably be made in this case. In my opinion, in making this application and dealing with employees the liquidator has been carrying out his duties as liquidator to wind up the affairs of NPL and properly distribute its property.[17]

45 The liabilities to employees were obligations and liabilities of NPL. Of course, NPL could indemnify itself for these liabilities from the trust funds. Nevertheless, the liquidator was obliged in the winding up of NPL to determine first whether NPL was liable to the employees and then to determine whether NPL could indemnify itself for the liability out of trust funds. In my opinion, it is not possible to reasonably characterise the costs of doing so as not being incurred for the purposes of the winding up of NPL.

46 In the circumstances, I am satisfied that the liquidator is justified in causing his remuneration and costs and expenses of this application and in respect of his dealings with employees of NPL and their creditors claims to be paid first from the assets held by NPL in its own right and then from the trust assets of the NP Trust and the National Personnel Trust in equal amounts, subject to the usual priorities under s 556(1) of the Corporations Act 2001.

47 Mr McCredden who appeared for Stafford Services Pty Ltd (in liquidation) supported the application insofar as it related to Stafford.

(1) The applicant is justified in treating categories 4, 5, 6, 7, 8 and 10 employees, as defined in paragraphs 85 and 87 of the affidavit of Geoffrey Niels Handberg sworn 10 May 2012, as employees of National Personnel Pty Ltd (in liquidation) (the "company").

(2) The applicant is justified in paying any employee entitlements incurred by the company up to and including 21 February 2005 out of the assets of the NP Trust, to the extent that such assets are available pursuant to the company's right of indemnity under the NP Trust Deed dated 18 November 2003, and subject to the usual priorities under section 556(1) of the Act.

(3) The applicant is justified in paying any employee entitlements incurred by the company from 22 February 2005, out of the assets of the National Personnel Trust, to the extent that such assets are available pursuant to the company's right of indemnity under the National Personnel Trust Deed dated 21 March 2002, and subject to the usual priorities under section 556(1) of the Act.

(4) The applicant is justified in causing his remuneration, costs and expenses of and incidental to this application and in respect of his dealings with employees of the company and their creditor claims to be paid first from the assets of the company in its own right and then from the trust assets of the NP Trust and the National Personnel Trust in equal amounts, subject to the usual priorities under section 556(1) of the Act.

[1] See Corporations Act 2001 s 497 et seq.

[2] See Corporations Act 2001 s 511(1); Supreme Court (General Civil Procedure) Rules 2005 O 54;Trustee Act 1958 s 63.

[3] Corporations Act 2001 s 511(2).

[4] [2010] VSC 336; (2010) 79 ACSR 373.

[6] (1991) 24 NSWLR 674 , 679-680.

[7] [2002] FCA 90; (2002) 115 FCR 409

[9] In this section, I gratefully adopt the legal analysis submitted by Mr P G Crutchfield SC and Mr C R Brown on behalf of the liquidator.

[10] See, eg, Re AFG Pty Ltd (recs and mgrs appointed) (in liq) [2010] FCA 1163; (2011) 80 ACSR 56, [52].

[11] [2000] VSC 462, [10] (citation omitted).

[12] [2004] FCA 1148, [20].

[13] See, for example, Re Suco Gold Pty Ltd (1983) 7 ACLR 873.

[14] [1999] FCA 144; (1999) 30 ACSR 377, 386.

[15] [2010] FCA 1371.

[16] [2003] NSWSC 1008; (2003) 59 NSWLR 361, [209] (my emphasis).

[17] See Corporations Act 2001 ss 477(2)(m) and 506(1)(b).