Walley, in the matter of PGP Group (Aust) Pty Ltd [2023] FCA 1554

Pre-Appointment Employee Proposal The first plaintiffs will cause the second plaintiffs to continue the payroll practises that were adopted by the second plaintiffs immediately prior to the appointment of the first plaintiffs in relation to determining the amount of wages and other benefits to be paid to employees of the second plaintiffs and the manner in which they are paid, including as to:

1. determination as to which modern award that has effect under the Fair Work Act 2009 (Cth) applies to each employee;
2. determination of the classification within each such award that applies to each employee;
3. determination as to the number of hours worked by the employee, and the classification of such hours;
4. the base rate of pay to be applied to each employee;
5. the application of any penalties loadings and allowances to an employee;
6. the taxation or withholding of tax on any payments to employees; and
7. calculation of the amount of superannuation contributions. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

A. Introduction 1 The first plaintiffs were appointed as administrators of the second plaintiff (PGP) on 30 October 2023. On 16 November 2023, after hearing an urgent application of the plaintiffs on the evening of 15 November 2023, I made various orders pursuant to s 447A(1) of the Corporations Act 2001 (Cth) and directions pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS(C)). These are my reasons for granting the principal forms of relief sought.

B. Background 2 The background set out below is taken from the evidence before the Court on this application, namely four affidavits affirmed by Mr Walley (one of the administrators) and an affidavit affirmed by Ms Hazell (another of the administrators); and from an outline of submissions provided by Mr Krochmalik and Mr Foley, counsel for the plaintiffs. One of Mr Walley's affidavits is subject to an order pursuant to s 37AF(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) preventing the publication of its contents (as to which, see C.4 below). 3 Since 2011, PGP has participated in the Pacific Australia Labour Mobility Scheme. Under that scheme, which is managed by the Commonwealth Department of Employment and Workplace Relations (DEWR) and the Commonwealth Department of Foreign Affairs and Trade, residents of certain other countries and in particular nine Pacific Island countries and Timor-Leste, migrate to Australia for fixed terms in order to fill labour gaps in rural and regional Australia. 4 PGP's business includes employing such persons and providing their labour for reward to PGP's customers in Australia, primarily in respect of work in agriculture and food preparation. 5 Following their appointment, the administrators sought to continue to operate PGP on a "business as usual" basis, while assessing viable options concerning PGP's future. As at the date of the hearing of the application, the administrators believed that there were a number of courses of action open to them, of which a sale of PGP's business as a going concern was preferable. The administrators had also identified potential purchasers of PGP's business. 6 The administrators identified that PGP had approximately 1,400 employees and: (1) of those, approximately 1,250 were employed on a casual basis, with the remainder employed on a full-time basis; (2) the employees engaged by PGP: (a) were engaged in different tasks, with the majority (approximately 1,070) engaged in horticulture, a smaller number employed in meatworks (approximately 160), and a number of employees engaged in other fields (such as labouring, working in bakeries and administrative work); (b) worked across several states of Australia; and (c) were paid weekly. 7 The administrators formed views that: (1) the employees of PGP were subject to at least three different employment awards, namely the Horticultural Award 2020, the Meat Industry Award 2020, and the Clerks, Private Sector Award 2020, and subject to varying entitlements; (2) the employees were typically directed and supervised on a day-to-day basis by customers of PGP and not PGP itself; (3) the payroll practices of PGP operated on the basis of timesheets submitted and processed by PGP, some of which are initially prepared by hand; (4) it had not been possible in the limited time available while PGP had been under administration (and in particular in the context of the administrators' other responsibilities and duties) to review the work practices of each of the employees, the requirements of each relevant award and the existing payroll practices of PGP, so as to determine whether each of PGP's employees was receiving their correct pay and entitlements; and (5) such a process would likely take several months and possibly up to six months and cost many hundreds of thousands of dollars, a process which was simply not feasible for the administrators to carry out. 8 The administrators wished to continue to adopt PGP's current payroll practices so as to enable the employees to continue to be employed and carry out work, and thereby enable PGP to continue to trade in the interests of all stakeholders (including for the purposes of enabling an advantageous sale of PGP's business to take place). 9 The administrators also identified approximately 150 known potential creditors (excluding any employee creditors) - including the Australian Taxation Office ($12.8 million) and Scottish Pacific Business Finance Ltd ($2.53 million) - and total debts owed to those creditors as at the date of appointment in the order of $23 million. 10 Since January 2022, PGP has operated its business using a debtor finance facility, pursuant to which PGP was advanced a portion of its receivables immediately by Scottish Pacific. The administrators negotiated a varied debtor finance facility with Scottish Pacific (Administration Facility). The Administration Facility was required to enable PGP to continue trading. Scottish Pacific has agreed that it will not seek to recover any amount from the administrators beyond the administrators' right of indemnity from the assets of PGP, subject to any "excluded conduct" as defined in the Administration Facility. 11 On 9 November 2023, the administrators convened a first meeting of creditors. At that meeting, Mr Walley advised those present of the administrators' intention to make the application that was made ultimately and of their reasons for doing so. 12 On 14 November 2023, the administrators gave notice to potentially interested persons of the administrators' intention to bring the application, together with further information. Those notified included the Australian Securities and Investments Commission; the Australian Taxation Office; the DEWR; the Fair Work Ombudsman; the Department of Home Affairs; Scottish Pacific; the directors of PGP; and all known creditors and employees of PGP.

C.1 Generally 13 Section 443A, which forms part of Part 5.3A of the Act, provides: 443A General debts (1) The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for: (a) services rendered; or (b) goods bought; or (c) property hired, leased, used or occupied, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods; or (d) the repayment of money borrowed; or (e) interest in respect of money borrowed; or (f) borrowing costs. (2) Subsection (1) has effect despite any agreement to the contrary, but without prejudice to the administrator's rights against the company or anyone else. 14 Section 447A of the Act provides the Court with a broad power to make such orders as it thinks appropriate about how Part 5.3A of the Act is to operate in relation to a particular company. That power is to be exercised consistently with the purpose of Part 5.3A, namely to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence, or, if that is not possible, results in a better return for the company's creditors than would result from an immediate winding up of the company (s 435A). 15 The power under s 447A of the Act to make orders limiting the personal liability of administrators under s 443A of the Act is well-established: see e.g. Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd) (admins apptd) [2010] FCA 1469; (2010) 82 ACSR 142 at 145 to 146 ([28] to [30]) (Gilmour J); Korda, in the matter of Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 1144; (2017) 35 ACLC 17-044 at 662 ([40] to [42]); and Strawbridge, in the matter of Virgin Australia Holdings Ltd (Administrators Appointed) (No 2) [2020] FCA 717; (2020) 144 ACSR 347 at 386 to 387 ([87] to [91]) (Middleton J). In Griffin Coal at 146 [30], Gilmour J explained: The principles governing the granting of an application for orders under s 447A to vary the liability of administrators under s 443A can be summarised as follows: a) the proposed arrangements are in the interests of the company's creditors and b) typically the arrangements proposed are to enable the company's business to continue to trade for the benefit of the company's creditors; c) the creditors of the company are not prejudiced or disadvantaged by the types of orders sought and stand to benefit from the administrators entering into the arrangement; d) notice has been given to those who may be affected by the order. (citations omitted) 16 In the particular context of relief from liability incurred in connection with funding to allow a company under administration to continue to trade, see e.g. Lord, in the matter of Invigor Group Limited (administrators appointed) [2022] FCA 1064 at [22] (Yates J) and Strawbridge at [90] to [91]. As Yates J noted in Lord it is not expected that administrators should expose themselves to substantial personal liabilities on account of such funding. 17 Section 90-15 of the IPS(C) provides the Court with a broad power to make such orders as it thinks fit in relation to the external administration of a company. The directions made may involve the consideration of commercial as well as legal issues, often required to be made within a short-time frame. The commercial element does not prevent such a direction being made: see e.g. In the matter of RCR Tomlinson Ltd (administrators appointed) [2018] NSWSC 1859 at [14] (Black J); Hill, in the matter of Ovato Limited (Administrators Appointed) [2022] FCA 903 at [16] to [18] (Stewart J) and Sparks, in the matter of IG Energy Holdings (Australia) Pty Ltd [2023] FCA 538 at [20] to [22] (Halley J).

C.2 Liability for employees' wages 18 I was persuaded to make a direction that the administrators were justified in continuing to pay employees in accordance with the pre-appointment arrangements of PGP; and an order amending the operation of s 443A so as to limit the administrators' personal liability with respect to any additional liability they may have from PGP's employees being paid in accordance with these arrangements, for the following reasons. 19 First, it appeared plainly to be in the interests of PGP, its creditors and its employees that it continue to trade. In this regard if PGP had ceased to trade: (1) it would have been, in the administrators' view, difficult if not impossible, for PGP to have been successfully sold or restructured with a consequent adverse effect upon the creditors of PGP; and (2) there would have been an obvious and significant effect upon its employees. 20 Secondly, for PGP to continue to trade, PGP needed to retain its workforce. 21 Thirdly, it was not practically feasible for the administrators to satisfy themselves in the short-term that PGP's pre-existing payroll arrangements complied with the statutory awards applicable to PGP's employees or that each employee would receive the correct pay or entitlements under these arrangements. 22 Fourthly, it was unreasonable to expect the administrators to assume the risk of personal liability in connection with any under-payment of PGP's employees arising from payment made in accordance with the pre-existing payment arrangements in circumstances particularly where, given the number of employees involved, this personal liability could have been significant. The practical consequence of the administrators being exposed to such personal liability would have been that they had no choice but to cause PGP to cease to trade. 23 Finally, notice had been given to creditors, employees and other interested persons of the application, both at the first creditors meeting on 9 November 2023 and following the filing of the originating process on 14 November 2023, and no interested person expressed any opposition to the application or appeared at the hearing of the application. Further, the orders proposed by the plaintiffs and ultimately made allowed any interested party to apply to the Court to vary or discharge any of the orders made.

C.3 Liability in connection with the Administration Facility 24 I was satisfied that orders should be made altering the operation of s 443A of the Act so as to limit the personal liability of the administrators in connection with the Administration Facility for the following reasons. First, I was satisfied that the Administration Facility was necessary for the continued operation of PGP. Secondly, it was unreasonable to expect the administrators to incur personal liability in connection with finance obtained so as to enable PGP to continue to trade in the present circumstances. Thirdly, there was no obvious likely disadvantage or prejudice to PGP's unsecured creditors, and clearly identifiable benefits to them from the ongoing conduct of PGP's business. Finally, it appeared that the only entity that may have been prejudiced by the limitation of the administrators' liability with respect to the Administration Facility was Scottish Pacific and it did not object to the making of the order (and has liberty to apply).

C.4 Suppression order - Mr Walley's confidential affidavit 25 Finally, I was persuaded that it was necessary to prevent prejudice to the proper administration of justice within the meaning of s 37AG(1)(a) of the FCA Act to make a non-publication order operative until the completion of the administration in respect of the information in that affidavit and its exhibit because disclosure of that information could have prejudiced the proposed sale process by giving potential purchasers or competitors access to sensitive financial information. Again, as noted above, leave was granted for any sufficiently interested party to apply for a variation of that order. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.