Are claims by a regulator extinguished by a DoCA?

Articles Written by Aidan Douglas (Special Counsel), Macsen Nunn

The Federal Court has considered whether a deed of company arrangement (DoCA) binds a regulator.  The case involved an application by the Fair Work Ombudsman (FWO) for leave to proceed against a company in liquidation. The Court rejected the company’s argument that the FWO’s claims were extinguished by the DoCA and granted the FWO leave to pursue the claim. The outcome of the proceedings may impact the types of, and circumstances in which, claims by a regulator will not be extinguished by a DoCA. A link to the full decision is here.

Background

Foot & Thai Massage Pty Ltd (FTM) was placed into voluntary administration in December 2015, the outcome of which was entry into a DoCA. The DoCA was terminated in October 2017 and the company ceased to be under external administration at that point.

In June 2018, the FWO brought proceedings against FTM alleging multiple breaches of award entitlements, adverse action and discrimination, as well as other breaches of the Fair Work Act 2009 (Cth) and Fair Work Regulations 2009 (Cth).

On 13 August 2019, well after the matter had been listed for hearing, FTM’s creditors resolved to wind up the company. The FWO filed an interlocutory application seeking leave of the Court to proceed against FTM. In response, the company pleaded the DoCA as a bar to the FWO’s claim.

FWO’s arguments

In granting leave, the Court found that the FWO’s claim had a solid foundation and gave rise to a serious question to be tried. The key arguments of the FWO were:

  1. the FWO was not a creditor of the company when it went into administration in December 2015, particularly given that it commenced its proceedings after the DoCA was terminated
  2. the claims were not brought on behalf of employees, who were covered by the DoCA, but pursuant to a statutory power
  3. certain of the claims related to contraventions of the National Employment Standards, which it is not possible to contract out of
  4. the claims included non-pecuniary claims, which are not provable in a winding up.

We will issue a further update once there have been further developments in these proceedings.

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