Ayla Hutton and Others v Provencocadmus Ltd ((in Receivership)) and Others
IN THE EMPLOYMENT COURT AUCKLAND
M E Perkins
Philip Skelton and Counsel for Plaintiffs Tim Clarke and Liz Coats Counsel for Defendants
Referral of question of law from the Employment Relations Authority to the Employment Court — whether the Authority had jurisdiction to determine the plaintiffs claims for unpaid wages, holiday and redundancy entitlements from the defendant companies which were in receivership — plaintiffs sought a determination on liability and the fixing of quantum — whether the plaintiffs claim came within the definition of preferential claims under s2 Receiverships Act 1993.
Held: The issue was whether the Authority had jurisdiction to determine the claim since the companies had been placed into receivership
The Authority and Employment Court had jurisdiction to determine the liability and quantum of wages, holiday pay and redundancy compensation owing. The Authority and if necessary the Employment Court could then make other awards such as compensation and penalties but those would have no preferential status in receivership or liquidation of the employer company. Any reimbursement under s123(1)(b) ERA (remedies — reimbursement of wages or other money) also ranked as a preferential claim; that was specified in cl2 Sch7 CA (Conditions to priority of payments to preferential creditors) and s274(2)(e) Insolvency Act 2006 (“IA”) (priority of payments to preferential creditors). Once the Authority or Employment Court had determined the identity of the employer and if necessary the liability and quantification of monetary claims, the Receiverships Act 1993 (“RA”) would then take over under the jurisdiction and supervision of the the High Court on the matter of priority for payment of those claims from the pool of funds available. If the employees wished to pursue any part of the wages or entitlements outside the limited monetary preference then those claims would simply rank in the pool of unsecured creditors.
The relationship between the ERA, the RA and CA was similar to the position that applied when an ordinary commercial creditor of a company in receivership or liquidation made a claim. Once liability and quantification was determined the receiver or liquidator was then required to accept the claim and deal with its priority as secured, preferential or unsecured or whatever the case may be. Clause 2 Sch7 CA and s274(2)(e) IA recognised as preferential claims, orders for reimbursement by the Authority pursuant to s123(1)(b) ERA and s128 ERA (reimbursement). That pointed the the defendants application for strike out as unsupportable, but that was for the Authority to determine.
The issues between the parties relating to the identity of the employer and if necessary the liability for and quantification of the claims for wages, holiday pay, redundancy pay and reimbursement were required to be determined by the Authority. Once those issues were determined the receivers would be in a position to deal with those parts of the claims that had preference and then priority under the receivership.
The receivership of the defendant companies did not prevent the Authority from investigating and determining the plaintiffs’ claims brought under s131 ERA. The claims had to relate to the companies and not the receivers personally as neither the Authority nor the Employment Court had jurisdiction to deal with claims against the receivers personally.
The matter was referred back to the Authority to continue with its investigation.
JUDGMENT OF JUDGE M E Perkins
This matter involves a referral of a question of law from the Employment Relations Authority (the Authority) to the Employment Court (the Court) pursuant to s 177 of the Employment Relations Act 2000 (the Act).
In order to answer the question posed by the Authority it is necessary to set out the material facts and the basis of the submissions made to the Authority. The plaintiffs are 113 employees who were employed at material times under individual employment contracts by one or more of the three defendant companies. Those companies are part of the ProvencoCadmus Group. They are ProvencoCadmus Limited (in receivership), Cadmus Payment Solutions Limited (in receivership) and Provenco Payments Limited (in receivership). The companies are first, second and third defendants respectively in these proceedings.
As the Authority Member states in his referral of question, during August 2009 the defendants were placed in receivership and the employment of the plaintiffs was terminated by the receivers and managers appointed by a secured creditor.
Pursuant to the Receiverships Act 1993, on 17 August 2009, the receivers lawfully terminated the plaintiffs' employment agreement within 14 days after the date of their appointment. The plaintiffs were re-employed on new employment agreements. These excluded the receivers' personal liability to them. The new employment agreements were then terminated on 19 August 2009 when the receivers sold some of the companies' assets to a purchaser.
The plaintiffs lodged claims in the Authority to recover unpaid wages or salary, holiday pay, redundancy compensation and other money they alleged were their entitlements under their employment agreements upon termination.
Mr Clarke in his written submissions concedes the defendants do not dispute that the plaintiffs are owed the payments for wages or salary, holiday pay and redundancy compensation sought to be recovered but has challenged the jurisdiction of the Authority to order any of the ProvencoCadmus companies in receivership to make payment of preferential claims to the plaintiffs as creditors. According to the referral of question dated 10 May 2010 the defendants claimed before the Authority (and presumably now in this Court in respect of the question referred to it), that because the defendant companies are in receivership an investigation and determination of the plaintiffs' claims is not able to proceed. It is therefore on that basis that the defendants contend the Authority lacks jurisdiction and an application has been made to the Authority striking out the plaintiffs' claims in whole or in part. The Authority Member states that at an investigation meeting on 30 March 2010, the defendants submitted that the claims made by the plaintiffs are within the definition of preferential claims under s 2 of the Receiverships Act 1993, which incorporates schedule 7, cl 1(2)(a) - (c) of the Companies Act 1993. The further submission was made that the Authority does not have jurisdiction to make an order requiring the respondent's receivers and managers to make preferential payments to creditors and for this reason it was submitted that the claims are untenable and should be struck out. There are therefore a number of separate issues arising from the defendants' submissions.
During the same investigation meeting the plaintiffs clearly confirmed in their submissions to the Authority Member that the plaintiffs were not seeking orders as to how the receivers and managers should allocate any funds from the administration that may be available to meet a determination, if made in the plaintiffs' favour by the Authority. The plaintiffs confirmed that they were not asking the Authority to determine the order in which payment is to be made to them as a particular group of preferential creditors. What they sought was a formal determination or declaration on liability and the fixing of quantum. That is not just for the admitted claims of wages or salary, holiday and redundancy compensation but may include other money as well including reimbursement and compensation. If, following that determination enforcement issues arise those enforcement issues may be one in which the Authority would not be involved in any event. Those submissions on behalf of the plaintiffs were taken further by Mr Skelton during the brief hearing before me.
I set out the question of law that is now referred to the Court for its opinion as follows:
Does the state of receivership that some or all of the respondent companies are now in prevent the Authority from investigating and determining the applicants' claims which have been brought to it under s 131 of the Employment Relations Act?
In his submissions on behalf of the plaintiffs, Mr Skelton emphasised that the claim by the plaintiffs is not against the receivers personally for breach of duty or for a compliance order requiring the receivers to make payment to the plaintiffs in priority to any other claim in the receivership. The object of the claim is to obtain a determination that the plaintiffs are owed arrears of wages, holiday pay, and redundancy compensation and other entitlements from one or other of the companies named as defendants and thereby to resolve any dispute over whether the plaintiffs have the status, which then entitles them to make a claim as a preferred creditor in the receivership of the companies. Inherent is the issue as to which entity is the employer in each case, whether it be one or more of the three named defendants.
Mr Skelton submitted that the Authority has exclusive jurisdiction pursuant to s 161 of the Act to determine the identity of the plaintiffs' employer and the amount of arrears of wages and other money payable to the plaintiffs pursuant to s 131...
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