Court gives green light to FWO to pursue insolvent employer

In brief 2 min read

The Federal Court has given leave to the Fair Work Ombudsman (FWO) to pursue legal action against an employer for wage underpayments and contraventions of the Fair Work Act 2009 (Cth) (FW Act), despite the employer being placed in voluntary liquidation¹.

How does it affect you?

The Federal Court's decision signals a willingness of courts to permit the FWO to continue pursuing employers for wage underpayments, where such pursuit is in the public interest, and despite the insolvency of the employer.

Background

In September 2019, the FWO commenced proceedings against Blue Sky Kids Land (BSKL), a children's clothing retailer, for alleged contraventions of the FW Act and the General Retail Industry Award. The alleged contraventions were serious and included failing to pay employees minimum award entitlement, making and keeping misleading employee records, intentionally obstructing FWO inspectors and threatening to dismiss an employee who exercised her right to participate in an FWO interview.

While the proceedings were on foot, BSKL then went into voluntary liquidation in March 2020.

Under the Corporations Act 2001 (Cth), no action or civil proceeding can be pursued against a company after the passing of a resolution for voluntary winding-up, unless leave is provided by a court. The FWO therefore sought leave from the Federal Court to proceed against BSKL.

The decision

Justice Katzmann granted leave to the FWO to continue the proceedings against BSKL. Some of the key factors in reaching this decision were that:

• The applicant in this case was a regulator with important statutory duties, and the matter was one which raised issues of public importance, as there was a public interest in deterring the type of unlawful conduct BSKL is alleged to have engaged in.
• A large proportion of the compensation sought by the FWO in the proceedings related to underpayment of wages and other entitlements. These entitlements would have priority over the claims of most other unsecured creditors of the company. The declaratory relief and civil penalties that FWO is seeking would also not be recoverable through the liquidation process.
• The liquidator consented to FWO's application, and there was also no objection to the application from any of BSKL's creditors.

Accordingly, Justice Katzmann determined that the FWO should not be left to prove its debt to the liquidator, and permitted the FWO to continue with its proceedings against BSKL.