Supreme Court New South Wales Medium Neutral Citation: In the matter of Branded Media Holdings Pty Limited (in liquidation); In the matter of Brand New Media Pty Limited (subject to a Deed of Company Arrangement) [2020] NSWSC 557 Hearing dates: 28 April 2020 Decision date: 13 May 2020 Jurisdiction: Equity - Corporations List Before: Black J Decision: Direction that liquidators and deed administrators will be justified in determining that specified employees were employed by Brand New Media Pty Limited. Catchwords: CORPORATIONS – winding up – application for directions that liquidators and deed administrators are justified in determining employing entity – whether entity was an employer of record only - where entity had no assets to meet liabilities to employees – where another entity in corporate group paid employees on behalf of the group. Legislation Cited: - Corporations Act 2001 (Cth), s 479(3); Sch 2, s 90-15 - Fair Entitlements Guarantee Act 2012 (Cth) - Supreme Court (Corporations) Rules 1999 (NSW), r 2.13 Cases Cited: - Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174 - Fair Work Ombudsman v Grouped Property Services Pty Ltd [2016] FCA 1034 - Golden Plains Fodder Australia Pty Ltd v Millard [2007] SASC 391; (2007) 99 SASR 461 - Gothard (recs & mgrs of AFG Pty Ltd) (in liq) v Davey (2010) 80 ACSR 56 - Re Go Energy Group Ltd [2019] NSWSC 558 - Re Plutus Payroll Australia Pty Ltd (in liq) [2019] NSWSC 1171 - Walley; Re Poles & Underground Pty Ltd (admins apptd) [2017] FCA 486 - Warner (liquidator), Re Sakr Bros Pty Ltd (in liq) [2019] FCA 547 Category: Principal judgment Parties: Ronald John Dean-Willcocks and Anthony Wayne Elkerton (Plaintiffs) Commonwealth of Australia represented by the Attorney General (appearing under 2.13 of the Supreme Court (Corporations) Rules ) Representation: Counsel: A Gotting (Plaintiffs) M Izzo SC/A Smith (Commonwealth of Australia represented by the Attorney General) Solicitors: Shanahan Tudhope Lawyers (Plaintiffs) Clayton Utz (Commonwealth of Australia represented by the Attorney General's Department) File Number(s): 2019/290037 Judgment Nature of the application and the Court's jurisdiction 1. By Amended Originating Process filed by leave at the hearing, Messrs Dean-Willcocks and Elkerton ("Liquidators") as liquidators of Branded Media Holdings Pty Ltd (in liq) ("Holdings") and deed administrators of Brand New Media Pty Ltd (subject to a deed of company arrangement) ("BNM") seek certain directions under s 90-15 of the Insolvency Practice Schedule (Corporations), or alternatively s 479(3) of the Corporations Act 2001 (Cth) (if applicable through Pt 10.25 of the Corporations Regulations 2001 (Cth)) or in the Court's inherent jurisdictions. Those directions raise the question of the identity of the employer of specified employees within the Branded Media Group. The Liquidators seek, alternatively, directions that the that the Liquidators and Deed Administrators will be justified in determining that Specified Employees (defined as the employees specified in a schedule to the Amended Originating Process) were employed as at 27 April 2016 by Holdings or that they were employed as at that date by BNM. The Liquidators' primary position was that Holdings was the employer of the Specified Employees, although they recognise the case for the alternative characterisation of BNM as the employer. 2. The Commonwealth of Australia, which appeared by leave under r 2.13 of the Supreme Court (Corporations) Rules, contended for the contrary position, that BNM employed the Specified Employees. Mr Izzo, who appears with Ms Smith for the Commonwealth of Australia, in turn points to the Commonwealth's interest in the application where it has made advances of $1,040,576.45 in respect of Specified Employees' unpaid entitlements under the Fair Entitlements Guarantee Act 2012 (Cth) ("FEG"), has the same rights in the liquidation as those employees in respect of those entitlements and would receive a significantly larger dividend if BNM is the employer than if Holdings is the employer. Mr Izzo also pointed out that the position in respect of unpaid employee entitlements not covered by the FEG scheme would be affected by the outcome of this issue. 3. Mr Gotting, who appears for the Liquidators, makes submissions as to the scope of the former s 479(3) of the Corporations Act 2001 (Cth) and s 90-15 of the Insolvency Practice Schedule (Corporations) and notes that, given the date of commencement of the current proceedings, they fall under s 90-15 of the Insolvency Practice Schedule (Corporations) rather than s 479 of the Act. As I noted in a somewhat similar context in Re Plutus Payroll Australia Pty Ltd (in liq) [2019] NSWSC 1171 at [4], the Court's power to give a direction under s 90-15 of the Insolvency Practice Schedule (Corporations) is the same as, or is likely wider than, its powers under former s 479(3) of the Act: Walley; Re Poles & Underground Pty Ltd (admins apptd) [2017] FCA 486 at [41]; Warner (liquidator), Re Sakr Bros Pty Ltd (in liq) [2019] FCA 547 at [18]; Re Go Energy Group Ltd [2019] NSWSC 558 at [16]. 4. Mr Gotting also submits, and I accept, that the Court may discharge the power to give such a direction to assist a liquidator in the proper performance of his or her duties and functions, and where it is advantageous to the liquidation to do so. He submits, and I accept, that the direction in this case does not relate to the implementation of a business or commercial decision, and is advantageous in the conduct of the liquidation where the distribution of funds will differ depending upon whether Holdings or BNM is the employing entity. Assumed facts and affidavit evidence 1. Because this application was formulated as an application for directions, rather than seeking declaratory relief, the Liquidators identified the assumptions as to which they sought to have the Court proceed. Those assumptions are as follows (omitting assumptions that are not pressed and retaining the paragraph numbers from the Plaintiffs' submissions): 5. On 15 December 2004, BNM was incorporated (see Elkerton First Affidavit, par 13 and exhibit AE-1, tab 7, p19). 6. From 15 December 2004, one of the directors of BNM was Perry Mark Smith ("Mr Smith") (see Elkerton First Affidavit, exhibit AE-1, tab 7, pp20-21). 7. On 20 November 2008, Holdings was incorporated (see Elkerton First Affidavit, par 17 and exhibit AE-1, tab 9, p43). 8. On 20 November 2008, BNM acquired all of the ordinary shares in Holdings (see also Elkerton First Affidavit, exhibit AE-1, tab 9, p46). 9. From 20 November 2008 to 27 April 2016, one of the directors of Holdings was Mr Smith (see Elkerton First Affidavit, exhibit AE-1, p44). 10. In December 2008, BNM acquired the media business of Destra Corporation Limited and Holdings purportedly became (at some time in 2009) the employer of employees working in the media business (see Hepburn Affidavit, par 25-26). 11. From December 2008 or early 2009, the Chief Financial Officer acted on the basis that the employer of the employees was Holdings (see Hepburn Affidavit, par 39). 12. From late 2009, Holdings made written offers of employment to employees (see Hepburn Affidavit, par 107-110; see also Hepburn Affidavit, exhibit PH-2, tab 27). 13. From late 2009, employees accepted written offers of employment from Holdings (see Hepburn Affidavit, par 108; see also Hepburn Affidavit, exhibit PH-2, tabs 18 and 38). 14. In about 2013, the Human Resources Director (later known as the People and Culture Director) was Greta Smith ("Mrs Smith"), the wife of Mr Smith. 15. In about 2013, Holdings made a written offer of employment to Mrs Smith (see Hepburn Affidavit, exhibit PH-2, tab 50). 16. In about 2013, Mrs Smith accepted the written offer of employment from Holdings (see Hepburn Affidavit, exhibit PH-2, tab 50). 17. In 2013, BNM acquired the business of I-do.com.au and Holdings purportedly became the employer of employees working in the I-do.com.au business (see Hepburn Affidavit, par 166). 18. In 2013, Holdings made written offers of employment to employees working in the I-do.com.au business (see Hepburn Affidavit, par 167 and 168; see also Hepburn Affidavit, exhibit PH-2, tabs 9, 14, 47, 53). 19. In 2013, employees working in the I-do.com.au business accepted written offers of employment from Holdings (see Hepburn Affidavit, par 168; see also Hepburn Affidavit, exhibit tabs 9, 14, 47, 53). 20. On 30 June 2014, the accounts of BNM were the subject of general journal entries that recorded a provision of approximately $330,000 for payroll (see Hepburn Affidavit, exhibit PH-1, tab 19; see also Elkerton Second Affidavit, exhibit AE-3, tab 7, p116-119). 21. For the financial year ending 30 June 2014, the accounts of Holdings recorded current assets as a loan to BNM of approximately $598,000 (see Hepburn Affidavit, exhibit PH-1, tab 22, p294). 22. For the financial year ending 30 June 2014, the accounts of Holdings recorded current liabilities for superannuation, PAYG income tax, payroll tax, annual leave and long service leave and non-current liabilities for long service leave (see Hepburn Affidavit, exhibit PH-1, tab 22, p294). 23. In 2014 and 2015, BNM entered into joint ventures with two other media businesses (Waterfront and Max Partners) and intended for Holdings to become the employer of employees working in those businesses (see Hepburn Affidavit, par 82, 87, 180, 186 and 187). 24. In 2014 and 2015, Holdings made written offers of employment to employees working in the two media businesses (see Hepburn Affidavit, par 183 and 188; see also Hepburn Affidavit, exhibit PH-2, tabs 7, 8, 9, 10, 19, 31, 32, 37, 45). 25. In 2014 and 2015, employees working in the two media businesses accepted written offers of employment from Holdings (see Hepburn Affidavit, par 183 and 188; see also Hepburn Affidavit, exhibit PH-2, tabs 7, 8, 9, 10, 19, 31, 32, 37, 45). 26. On 30 June 2015, the accounts of BNM were the subject of general journal entries that recorded a provision of over $1,089,000 for payroll, superannuation and leave (see Hepburn Affidavit, exhibit PH-1, tab 19; see also Elkerton Second Affidavit, exhibit AE-3, 11-119). 27. On 30 June 2015, the accounts of Holdings were the subject of general journal entries that recorded current liabilities for superannuation, PAYG income tax, payroll tax, annual leave and long service leave and non-current liabilities for long service leave (see Hepburn Affidavit, exhibit PH-1, tab 19). 28. For the financial year ending 30 June 2015, the accounts of Holdings recorded current assets as a loan to BNM (see Hepburn Affidavit, exhibit PH-1, tab 22, p294-296). 29. For the financial year ending 30 June 2015, the accounts of Holdings recorded current liabilities for superannuation, PAYG income tax, payroll tax, annual leave and long service leave and non-current liabilities for long service leave (see Hepburn Affidavit, exhibit PH-1, tab 22, p294). 30. From 1 January 2016 to 27 April 2016, Holdings issued pay slips to the Specified Employees (see Hepburn Affidavit, par 111, 202, exhibit PH-2, Tab 27). 31. From December 2008 to May 2016, Holdings issued PAYG Payment Summaries to the Specified Employees (see Hepburn Affidavit, par 114 and 256, tab 12; Elkerton Second Affidavit, exhibit AE-3, Tab 6, p51-115. 32. From December 2008 to May 2016, Holdings was registered for workers compensation in New South Wales and Victoria (see Hepburn Affidavit, par 259). 33. On 27 April 2016, the Plaintiffs were appointed administrators of BNM (see Elkerton First Affidavit, par 4 and exhibit AE-1, tab 1). 34. On 27 April 2016, the Plaintiffs were appointed administrators of Holdings (see Elkerton First Affidavit, par 4 and exhibit AE-1, tab 2). 35. On 27 April 2016, the accounts of BNM were the subject of general journal entries that recorded a provision of over $1,043,000 for payroll, superannuation and leave (see Elkerton Second Affidavit, exhibit AE-3, Tab7, pp116-119). 36. From 28 April 2016 to 17 May 2016, the Plaintiffs terminated the employment of the Specified Employees (see Elkerton First Affidavit, par 21 and exhibit AE-1, tab 11; see also Elkerton First Affidavit, exhibit AE-1, tab 14, p133). 37. On 17 May 2016, one of the directors of BNM provided the Plaintiffs with a director questionnaire that stated that Mr Smith and Mrs Smith had the authority to engage and dismiss employees (see Elkerton Second Affidavit, annexure AE-2, tab 1, p2). 41. On 16 June 2016, a former director of BNM provided the Plaintiffs with a director questionnaire that stated that Mr Smith and Mrs Smith (and perhaps the Chief Financial Officer and David Borean, Managing Director) had the authority to engage and dismiss employees (see Elkerton Second Affidavit, annexure AE-2, tab 2, p6). 42. On 29 June 2016, the Plaintiff provided a FEG Initial Questionnaire to the Commonwealth of Australia that described the nature of the business of Holdings as (see Elkerton First Affidavit, exhibit AE-1, tab 14, p133; see also Elkerton First Affidavit, par 27): "Provided employees to related entities, Brand New Media Pty Limited (Administrators Appointed), BNM Waterfront Pty Limited, Brand New Media Interactive Pty Limited, Brand New Media Melbourne Pty Limited and Brand New Studios Pty Limited" 43. On 22 July 2016, the Plaintiffs caused the issue of PAYG Payment Summaries in the name of Holdings to the Specified Employees (see Elkerton Second Affidavit, exhibit AE-3, Tab 6, p51-115). 45. On 17 August 2016, Mr Smith provided the Plaintiffs with a director questionnaire that stated that Mr Smith and the "Executive Management Team" had the authority to engage and dismiss employees (see Elkerton Second Affidavit, annexure AE-2, tab 3, p11-14). 47. On 19 August 2016, the Plaintiff also informed the Commonwealth of Australia: "The sole purpose of [Holdings] was to provide employees to predominately BNM as well as other subsidiaries of BNM. All employee entitlements were physically paid from the bank account of BNM as [Holdings] did not have a bank account." 58. In respect of Holdings, the Plaintiffs accept that: (a) a payroll system was maintained. (b) the payroll system identified Holdings as the employer of the Specified Employees (see Hepburn Affidavit, par 195). (c) accounts were prepared relating to Holdings (see Hepburn Affidavit, par 190, 191 192). (d) the accounts record (as end of year journal entries) liabilities for leave in respect of the Specified Employees (see Hepburn Affidavit, par 250). (e) the accounts record liabilities to remit income tax in respect of the Specified Employees (see paragraphs 22 and 29 of this outline). (f) the accounts record liabilities to pay payroll tax in respect of the Specified Employees (see paragraphs 22 and 29 of this outline). (g) the accounts record liabilities to Holdings to pay superannuation in respect of the Specified Employees (see paragraphs 22 and 29 of this outline). (h) Holdings did not conduct any business by which it generated income (Hepburn Affidavit, par51; see also Elkerton First Affidavit, par 22). (i) Holdings was not the recipient of the services of the Specified Employees. (j) Holdings was wholly dependent upon BNM to meet its financial obligations. (k) Holdings did not operate any bank accounts (see Elkerton First Affidavit, par 22; see also paragraph 47 of this outline). (l) Holdings did not in fact pay the Specified Employees. (m) Holdings did not in fact remit income tax in respect of the Specified Employees. (n) Holdings did not in fact pay payroll tax in respect of the Specified Employees. (o) Holdings did not in fact make superannuation contributions in respect of the Specified Employees. 59. In respect of BNM, the Plaintiffs accept that: (a) BNM did not enter into a written contract of employment with any of the Specified Employees. (b) BNM operated a bank account (see Elkerton Affidavit, par 22). (c) BNM in fact paid the salaries and wages of the Specified Employees. (d) BNM remitted in fact income tax in respect of the Specified Employees. (e) BNM paid in fact payroll tax in respect of the Specified Employees. (f) BNM made superannuation contributions in respect of the Specified Employees. (g) BNM had its logo on some employment forms, including leave forms (see Hepburn Affidavit, exhibit PH-2, tab 2, pp132). 60. The Plaintiffs also accept that: (a) the Specified Employees provided their services to BNM or subsidiaries of BNM. (b) the leave forms completed by the Specified Employees bore the logo of BNM (and not Holdings). (c) the business cards used by the Specified Employees bore the logo of BNM (and not Holdings). (d) the sign-off section of emails sent by the Specified Employees referenced BNM (and not Holdings). (e) the website referencing the Specified Employees referenced BNM (and not Holdings). 61. The Plaintiffs submit that it is open for the Court to find that: (a) The Specified Employees worked in departments or divisions (see Hepburn Affidavit, par 116-118). (b) The Specified Employees reported on a day-to-day basis to a "Department Head" of the department or division (see Hepburn Affidavit, par 119). (c) The Department Head made decisions about hiring within the department or division, although in some cases the decision was approved by Mr Smith or Mrs Smith (see Hepburn Affidavit, par 129 and 130). (d) The Department Head made day-to-day decisions on the work to be performed by the Specified Persons (see Hepburn Affidavit, par 129 and 130). (e) The Department Head reviewed the performance of the Specified Employees and made decisions relating to such performance, including disciplinary action is necessary (see Hepburn Affidavit, par 129 and 130). (f) The Department Head made decisions about the level of remuneration paid to the Specified Employees, including any pay rises to be given to the Specified Employees (see Hepburn Affidavit, par 129 and 130). (g) The Department Head made decisions about leave to be taken by the Specified Employees, including the taking of annual leave and long service leave (see Hepburn Affidavit, par 129 and 130). (h) The Department Head was offered employment by Holdings by a written contract of employment (see Hepburn Affidavit, par 129 and 130). (i) The Department Head accepted the written contract of employment (see Hepburn Affidavit, par 129 and 130). (j) The Department Head was issued with payslips by Holdings (see Hepburn Affidavit, par 111, 202). (k) The Department Head was issued with PAYG Payment Summaries by Holdings (see Hepburn Affidavit, par 111). 1. The Liquidators also read affidavit evidence and tendered voluminous documentation which provide the factual background to the assumptions that the Court was asked to make, to which I will also refer below. However, the Court is not reaching findings as to the relevant facts, and the effect of the direction which is made turns upon the correctness of the assumptions that the Court has been asked to make. 2. The Liquidators rely on the affidavit of Mr Elkerton dated 17 September 2019, which refers to the circumstances of the Liquidators' appointment and the nature of BNM's business. That affidavit also refers to the incorporation of Holdings on 20 November 2008 and recognises that BNM owns all of the shares in Holdings and that Mr Perry Smith, who was one of the two directors of BNM and a shareholder in BNM, was the sole director of Holdings. Mr Elkerton expresses the view that Holdings' only function was to employ workers who appeared to perform services for BNM and other entities within the corporate group. It is plain that Holdings entered some documentation which reflected that position, but whether it was in truth the employer of the Specified Employees is the matter as to which the Liquidators seek direction from the Court. Mr Elkerton also refers to the termination of employment of those employees in the period from 28 April 2016, after he was appointed as a Liquidator. The liquidators prepared termination letters on the basis that Holdings was the employer entity, but that reflects no more than their then understanding of that question. 3. Mr Elkerton refers to the fact that the Liquidators were uncertain as to whether Holdings or BNM was the true employer of employees who had contracts of employment with Holdings. There was good reason for that uncertainty, where employees' contracts of employment were with Holdings but it did not appear that Holdings conducted any business external to the Group; the Liquidators had not located any written agreement between Holdings on the one hand and BNM or other Group entities on the other for employees of Holdings to provide services to other entities; Holdings did not operate a bank account and only BNM operated a bank account so that it paid the Specified Employees for their services. 4. Mr Elkerton also refers to preliminary legal advice obtained, which recognised the difficulty of the question, but expressed the view (by contrast with later Counsel's advice) that Holdings was most likely to be considered to be the employer of the employees. He refers to subsequent communications with the Department of Jobs and Small Business in 2016, in respect of claims made by employees under the FEG Scheme and to information provided by the liquidators to the Commonwealth in that regard. The Department subsequently paid approximately $1,040,576 to employees of Holdings, made up of wages, annual leave, payment in lieu of notice, redundancy pay and long service leave and some other entitlements of employees remain unpaid. 5. Mr Elkerton refers to having obtained subsequent advice from Counsel, which expressed a contrary view to that previously put in the solicitors' preliminary advice previously obtained by the Liquidators, that a Court would likely find that BNM rather than Holdings was the true employer of the employees. It appears that the Liquidators were not persuaded by that advice, and they subsequently sought further advice from their solicitors, who recognised indicators that both entities could be the true employing entity but adhered to their earlier preliminary view that Holdings was likely to be the employer and recommended the application to the Court that has now been brought. Mr Elkerton also identified the effect on employees and creditors of a determination of the question. His evidence in that respect emphasises the desirability for the Court to give a direction as to that question, which has a significant practical impact on employees and creditors, but the parties rightly did not suggest that the Court would take the particular outcomes into account in providing relevant directions. 6. By a further affidavit dated 28 February 2020, Mr Elkerton identified further documentation relating to the directions sought, including information provided by directors in response to director questionnaires, reports to creditors of BNM and Holdings and the several legal advices that had been obtained. He also referred to the fact that Mr Smith had suffered medical difficulties which had limited the assistance which he could provide to the Liquidators. Mr Smith did not give evidence in the application. 7. The Liquidators relied on a further, and lengthy, affidavit sworn 28 February 2020of Mr Phillip Hepburn. Mr Hepburn worked for companies associated with the Group and was Chief Financial Officer of the Group from December 2008 to May 2016. Mr Hepburn referred to the manner in which a predecessor company conducted business under the "Brand New Media" brand; to the acquisition of that predecessor company and its assets by another company, Destra Corporation Limited ("Destra") which was subsequently placed in voluntary administration; and to the acquisition of that business by BNM and the establishment of Holdings. 8. Mr Hepburn referred to his understanding that Holdings employed the former employees of Destra to provide services for the Group (including BNM), although it seemed to me that that evidence did not go beyond Mr Hepburn's understanding of that question, which it appears was largely derived from discussions with Mr Smith and others within the business. Mr Hepburn's evidence was that he "treated Holdings as the employer of employees in Australia and the supplier of employees to other companies in the Brand New Media Group", but that evidence also does not seem to me to go beyond his understanding of that matter. He referred to several perceived advantages of a single company within the Group employing the Specified Employees, although that proposition does not assist in determining whether that single company was BNM or Holdings. 9. Mr Hepburn then set out, at substantial length, the nature of the business of the Group in Australia and internationally, and the several entities within the Group which undertook different activities. He referred to his responsibilities as Chief Financial Officer and to the responsibilities of management and several departments within the Group. This evidence was relevant to establishing the practical realities of the conduct of the Group's business, although it presently serves as background to the assumptions which the Court is asked to make. 10. I note, for completeness, that the Liquidators were subsequently appointed as voluntary administrators of BNM on 19 September 2019 and, on 28 February 2020 BNM and Messrs Elkerton and Dean-Willcocks as voluntary administrators executed a deed of company arrangement in respect of BNM (Ex P1). There is evidence that, in the financial years ending 30 June 2014, 30 June 2015 and 30 June 2016, Holdings made no profit and loss, and its profit and loss statement also records no income and expenses (Ex P2). An exhibit to Mr Elkerton's first affidavit (Ex P3) included a spreadsheet prepared by the Liquidators which provided extensive information as to relevant matters, including that Holdings was the stated employing entity on substantially all of the relevant employment contracts and BNM paid the salary for employees and accrued the leave liability for employees and was recorded as the employee in PAYG payment summaries. That exhibit also contained termination letters for the Specified Employees, to which I was taken at some length. It seems to me that they are of limited assistance, where the fact that Holdings rather than BNM terminated the relevant contracts of employment reflects no more than the fact that Holdings was the named party to those contracts of employment and the Liquidators proceeded on that basis. 11. That exhibit also contained information provided by the Liquidators in respect of issues under the FEG scheme, which reflected their understanding that Holdings provided employees to related entities, including BNM, and that its only asset was a loan due from BNM and that estimated recoveries from that loan were unknown at the time of their appointment. That exhibit also contained copies of the legal advices that had been obtained by the Liquidators, including Counsel's opinion, although both the Liquidators and the Commonwealth ultimately placed little weight on those advices in this application. The Liquidators also tendered directors' questionnaires (included in Ex P4) which identified the directors' views as to the persons who were responsible for the day-to-day management of the companies and who had the authority to engage or dismiss employees, but expressed different views as to whether BNM or Holdings was the employing entity. It seems to me that those questionnaires also went no further than to show the understanding of the directors as to that matter. 12. The Liquidators also tendered the brief to Counsel, on which her original advice that BNM was likely to be the employer had been given, although Counsel briefed for the Liquidators in this application emphasised that that brief was incomplete in some respects, in supporting the alternative view that Holdings rather than BNM was the employing entity. That exhibit also contained accounting records which included adjustments by way of provisions between BNM and Holdings, although those adjustments appear to have related only to the end of year period and did not record a liability by BNM to Holdings for the provision of services of Holdings' (notional) employees to BNM over the entirety of the period in which those services were provided. The parties' submissions and determination 1. Mr Gotting made comprehensive submissions as to the principles applicable to determining the identity of an employer. I will address some of the case law below, although I need not do so at length, where there was little controversy as to their content. The difficulty in this case, as in many cases, is the application of those principles in the particular case. 2. Mr Izzo in turn referred to Gothard (recs & mgrs of AFG Pty Ltd) (in liq) v Davey (2010) 80 ACSR 56 ("Gothard"), where Edmonds J (at [60]) identified several matters relevant to identifying the employing entity as including who had practical and legal control and direction of the employees; decisions about hiring and disciplinary issues and remuneration; who actually paid remuneration; who communicated with employees in respect of leave; and who made decisions about the termination of employment. The question in issue in that case was whether an entity within the Allco Finance Group which provided payroll services was the true employer of employees who in turn provided services to other operating entities within the Group. The evidence in that case, as in this case, was that there was practical benefit in having a single employing entity, and that the relevant entity was recorded, for example, as the insured under workers compensation arrangements, but did not pay employee wages or workers compensation liabilities and did not manage the employees or provide any direction as to their work. The terms and conditions of employment in issue in that case recorded that the employees would be "formally" employed by that entity. His Honour found that the relevant entity was a "payroll entity for the group" and "an employer of record" for the purpose of reporting obligations in relation to employees, including as to various taxes. As will emerge below, and putting aside the frank acknowledgment of the "formal" character of the employment in that case, the facts of Gothard have a close resemblance to those in the present case. 3. Mr Gotting in turn referred to my summary of aspects of the relevant principles in Re Plutus Payroll Australia Pty Ltd (in liq) above at [21] as follows: "In Australian Insurance Employees Union v WP Insurance Services Pty Ltd (1982) 42 ALR 598 at 606, the fact that a person's salary was paid by a particular company and the tax group certificates issued to her showed that company as her employee did not establish that that company was her employer. In Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd [1998] FCA 1465, a first company was held to be the employer, notwithstanding that a second company's name was shown on payslips and group certificates, where the first company made the employee's services available to the second company on condition that it pay their wages and attend to relevant tax deductions. In Re C&T Grinter Transport Services Pty Ltd (in liq) [2004] FCA 1148 at [20], Finn J pointed to several considerations that were relevant to identifying which of two or more possible entities was the employing company and noted, inter alia, that 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 of that matter and that 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. His Honour also emphasised that, in determining the identity of a disputed employer, the Court is entitled to consider "the reality of purported contractual arrangements"; that conversations and conduct at the time of the alleged engagement of the employee is of considerable significance; and the employees' beliefs as to the identity of their employer is admissible and is entitled to weight." 1. Mr Gotting identified matters relevant to that determination, all of which I accept are relevant, as including the reality of the arrangement between the parties; the documentation between the parties, including the person that offered employment; the payment of wages, superannuation and taxes and the issue of taxation-related materials; the maintenance of insurance policies and the payment of insurance premiums relating to workers compensation; the accounting treatment of employee entitlements; the person(s) who had practical and legal control and direction of the Specified Employees and made employment decisions. Mr Gotting also recognised that the documentation between the parties, the payment of wages and the issue of tax-related materials are not necessarily determinative, and that there may be legitimate business reasons for one company in a group to be the employer of all employees. 2. Mr Gotting submits that it is open to the Court to find that Holdings was the employer of the Specified Employees, other than Mr Smith who is employed by BNM, because Mr Hepburn's evidence (albeit directed to his understanding) was that Holdings was established for that purpose and to supply employees' services to other companies in the Group; there was a legitimate business reason for it to take that role; it was named as employer in offers of employment, in the payroll system, on pay slips, PAYG payment summaries and workers' compensation insurance policies, other than in Queensland, and accrued leave liability in respect of the Specified Employees. 3. Mr Gotting also submitted that Holdings was indebted to BNM for the amounts paid by BNM in relation to the Specified Employees. The evidence did not establish that proposition, so far as the relevant accounting entries appear to relate only to the end of year period and, in any event, I would give little weight to an indebtedness owed by a company that had neither revenue nor readily available assets that would allow it to meet that liability. Mr Gotting acknowledged that Holdings did not operate a bank account; did not in fact pay salaries to the Specified Employees or make superannuation payments or remit tax or pay insurance premiums in respect of them, and that all of those functions were performed by BNM. He submits that the fact that a third party makes payments of that kind does not necessarily mean that it is the employer, where it may be doing so as agent of the employer. 4. Mr Gotting also addressed the opinion previously obtained by the liquidators from a different Counsel, which expressed the view that the employer was BNM, but submits that it is open to the Court to attach less weight to that opinion by reference to several of the factors to which he had referred and to which the Counsel giving that opinion had given less weight, and because the documentation briefed to that Counsel was less comprehensive than the evidence led in this application. Mr Gotting, fairly, recognised that it was also open to the Court to find that BNM was the employer of the Specified Employees by reference to the matters to which the Counsel giving that opinion had referred and the additional matters which Mr Gotting had fairly acknowledged in submissions, to which I have referred above. 5. Mr Izzo responds that Holdings was essentially an employer of record, so far as its name was on the relevant documentation, but that BNM paid the employees their wages and entitlements out of its bank account; that BNM rather than Holdings charged other Group entities for the provision of services by those employees; that Holdings had no business, no assets and earned no income and had a share capital of $120 and was incapable of meeting the liabilities to employees of which it was notionally the employer, particularly where there was no ongoing practice of BNM reimbursing it for those services, or of accounting entries recognising the costs of those services across the whole of the relevant period. Mr Izzo also submits that the Court must look to the "substance and reality" in identifying the true employer in these circumstances and would look beyond contractual documentation and to the reality of the manner in which the parties conducted themselves in order to do so: Gothard at [52]; Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174 ("Ramsey") at [57]; Fair Work Ombudsman v Grouped Property Services Pty Ltd [2016] FCA 1034. 6. Mr Izzo also points out that the Court may have regard to whether the suggested arrangement had an "intelligible business objective" which is "consistent with the financial and administrative organisation of the business". I can accept that there would exist an intelligible business objective in a single employer entity within a group, at least where that entity oncharges the cost of employee services to other group entities, and there is either a payment structure or an accounting structure so that it is in a position to meet its obligations to employees on an ongoing basis. I do not accept that there is such an intelligible business objective where the suggested employing entity would, at all times, be incapable of meeting those obligations, which are in fact met by another entity which is the only entity that has the capacity to meet them. That is the case here, since Holdings could not have met the relevant obligations and BNM in fact met those obligations where it was the only entity with the capacity to do so. 7. Mr Izzo in turn identifies matters which the Commonwealth contends supports a finding that BNM was the true employer of the Specified Employees as including that they provided services to BNM and its associated joint venture vehicles; that costs of services to subsidiaries were charged by BNM rather than Holdings; that BNM paid employees their salaries and other entitlements and deducted relevant taxes which it paid from its bank account, where Holdings did not have a bank account; that Holdings could not have met liabilities for accrued annual leave and long service leave, given its asset position, although such liabilities were accrued in its accounts; that employees acted as representatives of BNM and its operating subsidiaries in dealing with third parties; and decisions about hiring and termination were made by those in senior management positions in BNM, although at least Mr Smith and Mrs Smith also had roles with Holdings. 8. Mr Izzo in turn submits that the matters on which the Liquidators rely to support a finding that Holdings is the employer largely relate to the formal character of the relationship, and Mr Hepburn's understanding of the relevant position and that is consistent with the treatment of Holdings as an "employer of record", which was not sufficient to establish an employment relationship in Gothard above. 9. In oral submissions, Mr Izzo emphasised that the practical reality of the relationship will determine which of two possible entities is the employer of an employee: Golden Plains Fodder Australia Pty Ltd v Millard [2007] SASC 391; (2007) 99 SASR 461 ("Golden Plains") at [33]. He submits that the practical reality is that BNM rather than Holdings employed the Specified Employees because it incurred the cost of paying them on a monthly basis and expensed that cost in its profit and loss; it did not purport to recover the cost of paying the employees from BNM or other subsidiaries of the Group to which they supplied services, and BNM on-charged those costs to those other subsidiaries; only BNM conducted business and has the assets or income to pay the employees; and the accrued employee liability shown on the balance sheet of Holdings were a year-end accounting entry only, reflecting liabilities that Holdings never met or had the capacity to meet. Mr Izzo submits that the question who directed or controlled the employees is question-begging where the companies are part of a corporate group in common ownership: Golden Plains above at [98]; Ramsey above at [77]. Mr Izzo submits that the fact that Holdings was named as employer on documentation such as contracts, payslips and PAYG summaries cannot override the practical reality of the relationship. 10. Mr Gotting, in reply, submits that the Commonwealth's submission that Holdings was essentially an "employer of record" understates the significance of other factors, including the role of other persons who were employed by Holdings in exercising control and direction over employees. However, as I noted in the course of the hearing, it seems to me that that proposition is circular, since the question of whether most of those persons purportedly exercising control were employed by Holdings depends upon the answer to the question as to which the Liquidators seek directions, and cannot establish an answer to that question. Mr Gotting also emphasises the purpose for which Holdings was incorporated, or at least Mr Hepburn's understanding of that purpose. It seems to me that that purpose is not inconsistent with the establishment of Holdings as an "employer of record", or alternatively with an intention that Holdings be the true employer, which was not carried through when, for example, Holdings did not charge for the provision of employment services to BNM and did not then have the financial capacity to discharge any obligations to employees, which were therefore discharged by BNM. Mr Gotting also submits that the fact that BNM paid the employees their wages and other entitlements is not conclusive that it is the employer. While that is correct, it seems to me that it is here a significant factor in that finding, particularly where Holdings would not have had the capacity to do so. Mr Gotting also seeks to distinguish the decision in Gothard, to which I will return below, by pointing to other relevant factors in that case. While I accept that that those submissions accurately reflect the facts of that decision, it does not seem to me that those matters are sufficient to distinguish that decision, as a matter of substance. 11. As I have noted above in addressing the parties' submissions, a structure by which Holdings was the employing entity, where it had no assets or revenue from which it could meet employees' entitlements, and did not charge for its services, would have had no intelligible business purpose, or at least no proper purpose. The documentation of the relationship is consistent with Holdings being an "employer of record" and is less significant in identifying the true employer than the fact that BNM incurred the costs of paying employees for entities across the group and on-charged other subsidiaries in respect of those costs. The question of direction or control is, at best, neutral where the issue arises in respect of a corporate group; and those said to have exercised that control were either employed by BNM (in the case of Mr Smith) or otherwise had involvements with both Holdings and BNM in different capacities. For these reasons, and adopting substantially the same reasoning as was adopted in Gothard, it seems to me that BNM rather than Holdings was the true employer of the Specified Employees. Direction 1. Accordingly, I direct that the Liquidators and Deed Administrators will be justified in determining that the employer of the Specified Employees (as defined) as at 27 April 2016 was Brand New Media Pty Ltd (subject to a deed of company arrangement). ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 May 2020