In 2010, the AWMU published a warning to company directors on its website, saying “if you turn your back on employees, we will fight you all the way.”  The warning was delivered in the context of a case which the AWMU and AWU fought in the Federal Court of Australia.

The case primarily involved claims by the two unions against Mr Beynon, the sole director and secretary of two companies, Forgecast Pty Ltd and Ideal Pty Ltd.  Forgecast operated a manufacturing business and had entered into enterprise agreements with the AWMU and AWU which covered its employees and included provision for redundancy payments.

In late 2009, Beynon sought advice and resolved for Ideal (Forgecast’s largest secured creditor) to appoint receivers and managers to Forgecast.  One of the receivers was Mr Dixon, who was also a party to the proceeding.  During the receivership, the receivers continued to operate the business for a short period, publicly advertised the business (unsuccessfully) for sale as a going concern, and then terminated the employment of all of the employees by reason of redundancy. 

In contravention of the enterprise agreements, Forgecast did not pay any redundancy entitlements to its former employees.  In December 2009, Beynon proposed to Dixon that another entity controlled by him would offer to purchase the business.  An offer to purchase assets of Forgecast was accepted by the receivers in June 2010, after the employment of all employees had been terminated.   Forgecast was then placed in liquidation and wound up.

In the proceeding, the unions claimed that both Beynon and Ideal were involved in contraventions by Forgecast, and liable as accessories for the contraventions.  The unions alleged that Beynon used the appointment of receivers to acquire Forgecast’s business without paying redundancy entitlements to the employees.  

In support of the claim against Beynon, the union alleged that Beynon had informed Dixon prior to appointing him as a receiver that Beynon proposed to re-start the business using another entity.  They alleged Beynon had appointed the receivers with the intention that Forgecast employees would be made redundant and Beynon would acquire the business or assets of Forgecast, without taking on liability for redundancy entitlements.

The Court accepted that Beynon had intended to emerge from the receivership of Forgecast in control of Forgecast’s business, and that he had wished to reduce the size of the workforce and cast responsibility for payment for redundancy onto GEERS, the Federal government scheme which aims to protect employee entitlements when companies go into liquidation.   However, this finding was insufficient to enable the unions to succeed in their claim.

The unions’ case ultimately failed because there was no common intention between Beynon and Dixon (who was the controlling mind of Forgecast) at the time of the contraventions.  Dixon’s reasons for proceeding with the sale of assets and liquidation of Forgecast related to the costs and lack of efficiency of winding up the company, and not the removal of liability for redundancy payments.   The Court found that Dixon had given Beynon arm’s length advice as an insolvency practitioner and, once appointed as receiver, exercised his powers in a perfectly normal way. He was required to act as he did, without any obligation to carry out Beynon’s wishes.   Without being “linked in purpose” with Dixon, Beynon was not a person involved in the contravention that actually occurred.

Whilst in this case, Beynon was not found to be liable, there is a real risk of personal liability for company directors or managers for failures by a company to meet obligations to employees.  Currently, penalties of up to $10,200 may be imposed on an individual for contraventions of the Fair Work Act 2009 in which they are found to be involved. 

For more information contact:

Jim Rutherford
Principal
Harwood Andrews
T: 03 5226 8579
E: jrutherford@harwoodandrews.com.au

Sonia McCabe
Associate
Harwood Andrews
T: 03 5226 8558
E: smccabe@harwoodandrews.com.au