DECISION

Fair Work Act 2009
s.120—Redundancy pay

Applications by Yu Kitchen Pty Ltd
(C2020/4661 and C2020/4662)

Variation of redundancy pay – incapacity to pay

[1] Yu Kitchen Pty Ltd has made applications under s 120(2) of the Fair Work Act 2009 (Act) to have the Commission vary the redundancy entitlements of two former employees of the company whose employment ended for reason of redundancy, Ms Wanxin Li and Ms Wei Suan Low.

[2] Ms Li and Ms Low worked at the company’s Chinese restaurant at Chadstone shopping centre in Melbourne. Ms Li worked for the company for one year and five months. Ms Low worked for the company for one year and four months. On 23 March 2020, the company shut the restaurant because of the government restrictions associated with the COVID-19 pandemic and stood down its employees. A short time later the company decided to close the restaurant permanently. Employees, including Ms Li and Ms Low, were made redundant effective from 26 April 2020.

[3] As Ms Li and Ms Low have more than one but less than two years’ service, they are each entitled to 4 weeks’ redundancy pay under s 119 of the Act. Based on their respective weekly wage, Ms Li is entitled to a payment of $3,461.54 and Ms Low is entitled to a payment of $3,846.16.

[4] The company seeks to have the Commission reduce these entitlements to nil on the basis that it cannot pay the amounts, as contemplated by s 120(1)(b)(ii) of the Act. The company is not a small business employer and is therefore not exempt from the obligation to make redundancy payments under s 121.

[5] Following a telephone mention, I issued directions to the parties to file and serve submissions and materials on which they sought to rely. The parties complied with these directions. The applications were then listed together for a telephone hearing before me on 6 August 2020.

Framework

[6] Section 120 of the Act confers on the Commission a discretion to reduce the amount of redundancy pay to which an employee would otherwise have been entitled under s 119. Section 120(1) states that the section applies if an employee is entitled to be paid an amount of redundancy pay under s 119, and (relevantly) the employer ‘cannot pay the amount’ (s 120(1)(b)(ii)). These are the jurisdictional facts that must be established before the Commission may exercise its discretion to vary redundancy pay. Section 120(2) then states that the Commission ‘may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that the FWC considers appropriate’. If the Commission makes an order under s 120(2), the amount of redundancy pay to which the employee is entitled is the reduced amount specified in the determination (see s 120(3)).

[7] The key questions for consideration in the present matter are whether the company cannot pay the amounts to Ms Li and Ms Low, and if this is the case, whether I should exercise my discretion to reduce those amounts.

Factual background and submissions

[8] Mr Jason Chang, the company’s director, gave evidence that the company had no money to pay the redundancy entitlements of Ms Li and Ms Low. He produced a bank statement dated 29 June 2020 showing that the company had a balance of $340.11. At the hearing, Mr Chang advised that this amount had reduced to $268.26 due to account keeping fees. He said that this was the company’s only bank account, and that the company did not have any other assets aside from some minor kitchenware. Mr Chang said that, even if the company’s applications under s 120 were not granted, it simply cannot pay the redundancy entitlements of Ms Li and Ms Low.

[9] The company contends that the jurisdictional requirements for the making of an order under s 120(1)(b)(ii) are met, as it is clear that Ms Li and Ms Low are entitled to be paid an amount of redundancy pay under s 119, and also that the company ‘cannot pay the amount’ (s 120(1)(b)(ii).

[10] As to the exercise of the Commission’s discretion, Mr Chang said that the company had acted in good faith towards its employees and prioritised the payment out of accrued leave on termination. He said that the company has simply run out of money, because it has been unable to trade and has had no income. Mr Chang said that the company began experiencing a downturn in trade in early 2020 when news of COVID-19 first made headlines, and that over the Chinese New Year period cancellations reached almost 80%. The business had closed in March and has not reopened, and there is no clear indication of when things will return to normal. Mr Chang said that the shareholders of the company had written off their investment.

[11] The company says that it is appropriate in all the circumstances for the Commission to exercise its discretion to vary the redundancy entitlements of Ms Li and Ms Low to nil.

[12] Ms Li and Ms Low opposed the company’s applications. They requested that the Commission determine that the company must pay their redundancy entitlements. I note in this regard that the Commission’s task under s 120 is to decide whether to vary the redundancy entitlements. It is not a court and has no power to order that the company pay employees their redundancy entitlements under s 119.

[13] Ms Low contended that the company had not provided sufficient evidence to show that it cannot pay her redundancy entitlement. She said that the company’s production of a single bank statement is not enough, as the company may have access to other funds or own assets that can be realised. Ms Low said that in late May the company had been able to make a payment of $6,959.86 to the former head chef after negotiations surrounding his final pay out. She suggested that other payments, including to her, may therefore be possible. Ms Low also said that, while Yu Kitchen had been faced with major financial problems, its loss was only ‘on paper’. At the hearing, she explained that by this she meant that there was no physical proof about the company’s situation. In short, Ms Low challenged the company’s contention that it was unable to pay her redundancy entitlement.

[14] On matters relevant to the Commission’s discretion, Ms Low said that if it was the case that there had been ‘transfers of assets’, the company’s first priority should have been to pay employees’ entitlements, however she said that this was only a thought. She did not allege that any particular transfers were inappropriate.

[15] Ms Low said that she had worked for the company for over a year on a full time basis and rendered loyal service, that she had had no income since 23 March 2020 and that her work visa did not entitle her to any government assistance. Ms Low also said that the shareholders of Yu Kitchen had created a new business called Calia Grill, which would start operating at the end of the lockdown, and that this business would be taking over the lease held by Yu Kitchen, and suggested that this business might pay her redundancy entitlement.

[16] Finally, Ms Low said that, if the company is liquidated, funds from the liquidation could be used to pay out all creditors, including former employees such as her, and that this is a reason why the Commission should not vary her redundancy pay. She also said that an order to reduce her redundancy entitlement to nil would remove her ability to make an application under the Fair Entitlements Guarantee (FEG) scheme if the company were wound up.

[17] Like Ms Low, Ms Li questioned the company’s contention that it could not pay her redundancy entitlement. She said that the assets and equipment of the restaurant, including tables, chairs and kitchen apparatus, would be worth over $10,000 on the second hand market. In this regard, she said that the previous chef had told her that he had spent thousands of dollars on refrigerators and deep fryers.

[18] Ms Li said that she too understood that the shareholders of Yu Kitchen had started a new business that would be taking over the lease of Yu Kitchen at Chadstone. She contended that her redundancy payment should be made by the shareholders of Yu Kitchen, or by the new business. Ms Li also said that she has experienced financial hardship following her dismissal for reason of redundancy and that her redundancy entitlement should not be varied.

[19] In reply to Ms Low and Ms Li, Mr Chang said that he strongly denied any suggestion that the company had made inappropriate transfers. He said that the major kitchen equipment was leased from another firm, Silver Chef, and was not owned by Yu Kitchen. He affirmed that the company had no realisable assets or cash, other than the $268.26 in its bank account and certain kitchenware comprising used plates, cups, cutlery and glasses that have minimal resale value, especially at the moment when Melbourne is under a lock down in response to the pandemic. Mr Chang said that although these items might in principle be sold, the cost of selling them would be greater than the small amount he would expect to sell them for.

[20] Mr Chang explained that he is the chief executive officer, but not a director, of a company called Calia Australia Pty Ltd, which is the leaseholder of the premises at Chadstone shopping centre where Yu Kitchen operated. Calia had sub-let the premises to Yu Kitchen, which was some $400,000 in arrears in the rent to Calia and had vacated the premises. Mr Chang said that Calia in turn owes this sum to Chadstone under the principal lease. As to the new venture referred to by the respondents, Mr Chang said that Calia Grill is only a concept which would endeavour to continue the lease and pay the arrears owed to the landlord. The business that is contemplated would only open once the lockdown in Victoria has ended, and it is not guaranteed that the business will be established.

[21] As to the payment made by Yu Kitchen to the head chef, Mr Chang said that this was not a negotiated settlement but simply the payment of his accrued leave, and that Ms Li and Ms Low had also received payment of their accrued leave. Mr Chang said that no redundancy payments were made to the chef, as he had resigned.

[22] Mr Chang further stated that the company’s funds had been used to pay creditors of the company and employee entitlements, and that it had prioritised the payment out to employees of accrued leave. He said that the position remained that the company’s funds were exhausted and that it was unable to make the redundancy payments to Ms Li and Ms Low. Mr Chang also said that there are no plans to have the company enter liquidation, as any proceeds would not cover the liquidator’s fees, let alone any debts owed to creditors.

[23] Finally, Mr Chang said that he wished that he had been able to keep the business running, and appreciated the sentiments of Ms Low and Ms Yi, but that the COVID-19 pandemic had, in his words, killed the business.

Consideration

[24] I find that the company cannot pay the amounts to which Ms Li and Ms Low are entitled under s 119. It is not in dispute that all employees of the company have been made redundant and that the business is not trading. The company has submitted a bank statement that shows a cash holding of $340.11. I accept Mr Chang’s sworn evidence that this amount has reduced to $268.26 due to account fees, and that this is the company’s only bank account. I also accept his evidence that the company does not have any other assets or receivables aside from used kitchenware of minimal value which could not be sold at a net gain, and that the company has had no income since March 2020. Mr Chang’s account was clear, detailed and credible.

[25] In my view there is no realistic prospect of any improvement in the financial position of the company. The business has shut indefinitely. It has no staff and no income. Yu Kitchen is $400,000 in arrears in its rent and has vacated the sublet premises. Victoria remains in the grip of the COVID-19 pandemic and is under wide-ranging restrictions. The possibility of a business turnaround for the company seems fanciful.

[26] I agree with the submission of Ms Li and Ms Low that the Commission should not lightly accept the contention of an applicant under s 120 that it is unable to make a redundancy payment, and that sound evidence is required before the Commission should be satisfied that this condition is met. I agree that a bank statement would not of itself be enough for the Commission to conclude that an employer had an incapacity to pay redundancy entitlements, because a statement does not provide a complete picture of the financial circumstances of the employer. But in this case, there is much more than a bank statement. There is the detailed evidence of Mr Chang, which I accept.

[27] Moreover, despite the questions raised by Ms Li and Ms Low, they have not pointed to any information, or presented any credible working hypotheses warranting further investigation, that cast doubt on Mr Chang’s evidence. I am satisfied that the company cannot pay the amounts owed to Ms Li and Ms Low under s 119 of the Act.

[28] Having established the jurisdictional facts required by s 120(1), I must now consider whether to exercise my discretion to reduce the amounts of the redundancy entitlements of Ms Li and Ms Low to nil, as the company asks.

[29] An important consideration in this respect is that I accept that the company has acted in good faith towards Ms Li and Ms Low. It has tried to do the right thing by its employees. It has prioritised the payment of accrued leave before paying other creditors. There is no evidence or credible suggestion of any inappropriate transfers or wrongdoing on the part of the company or its directors. The company’s business has clearly been decimated by the pandemic and the consequent restrictions imposed by government.

[30] There is no merit in the submissions of Ms Li and Ms Low that the shareholders of Yu Kitchen, or the new business that is proposed to be established, should pay their entitlements. The shareholders of Yu Kitchen have no legal relationship with Ms Li or Ms Low, and their liability in relation to Yu Kitchen is limited to their shareholding. Nor is there any merit in the argument that another entity should assume the liabilities of Yu Kitchen. There is no legal basis to ascribe responsibility for Yu Kitchen’s redundancy obligations to another person or entity. In any event, the Commission has no power under s 120 of the Act to do any such thing.

[31] A relevant consideration is the potential effect of an order under s 120 on employees’ ability to make a claim under the FEG scheme. If the company were to be liquidated, Ms Li and Ms Low could in principle, subject to the various eligibility requirements, make such a claim and seek payment from the government of their unpaid redundancy entitlements. If an order is made under s 120 in the terms sought by the company, the entitlements would be removed. However, the company has no money and no assets of value, so it is difficult to see what purpose would be achieved by liquidating the company. In my view there is no incentive for a person to seek to place the company in liquidation, because there is essential nothing to liquidate.

[32] The Act contemplates that there will be situations where an employer simply cannot pay the relevant redundancy entitlement, and in such cases the Commission may reduce the entitlement. Yu Kitchen cannot pay Ms Li and Ms Low the respective amounts because its business has been decimated by the pandemic. I consider it appropriate to vary the amounts, however I see no reason why the small remaining funds in the company’s bank account should not be divided between Ms Li and Ms Low. I will vary the redundancy entitlements of Ms Li and Ms Low to $134.13.

[33] An order will be issued separately reflecting this decision.

DEPUTY PRESIDENT

Appearances:

Mr J. Chang for Yu Kitchen Pty Ltd
Ms W. Low for herself
Ms W. Li for herself

Hearing details:

2020
Melbourne (by telephone)
6 August

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