C2004/1622, Transcript of Proceedings [2004] AIRCTrans 682 (19 February 2004)

AUSCRIPT PTY LTD
ABN 76 082 664 220

Level 4, 179 Queen St MELBOURNE Vic 3000
(GPO Box 1114 MELBOURNE Vic 3001)
Tel:[phone] Fax:[phone]

TRANSCRIPT OF PROCEEDINGS


O/N 6037
AUSTRALIAN INDUSTRIAL

RELATIONS COMMISSION

COMMISSIONER FOGGO

C2004/1622

AUTOMOTIVE, FOOD, METALS,
ENGINEERING, PRINTING AND
KINDRED INDUSTRIES UNION

and

SUSPENSION COMPONENTS
AUSTRALIA PTY LIMITED

Application under section 170LW of the Act
for settlement of dispute re alleged failure
of the company to comply with clause 35.2
of the agreement

MELBOURNE

11.34 AM, FRIDAY, 6 FEBRUARY 2004

PN1

MR J. BORNSTEIN: I seek leave to appear for the AMWU.

PN2

MR D. SULLIVAN: I appear on behalf of the Australian Industry Group for Suspension Components with MR B. BENNETT from the company.

PN3

THE COMMISSIONER: Thank you. What is your view in relation to leave?

PN4

MR SULLIVAN: It is okay, your Honour.

PN5

THE COMMISSIONER: Yes. Leave is granted, Mr Bornstein.

PN6

MR BORNSTEIN: Thank you, Commissioner. Commissioner, you should have before you I hope a notice under a dispute settling procedure and an agreement which has been filed pursuant to section 170LW of the Act.

PN7

THE COMMISSIONER: Yes.

PN8

MR BORNSTEIN: And I propose to just explain to the Commission why we are here and the circumstances which surround this matter before we suggest a way forward in relation to the matter. As you are aware, 170LW that confers powers on the Commission to settle disputes over the application of an enterprise agreement and the relevant agreement which I would seek to tender is the Suspension Components Australia Proprietary Limited Enterprise Bargaining Agreement 2002. You may have an extract.

PN9

THE COMMISSIONER: Yes. Thank you.

PN10

MR BORNSTEIN: The relevant clauses for present purposes, Commissioner, are to be found on I think pages 18 and 20. I will perhaps start with the first which is clause 35 headed: Security of employee entitlements. Clause 35.2, Commissioner, says:

PN11

The company recognises both employee and community concerns associated with the loss of employee entitlements ...(reads)... in the event of the company closing the following is agreed.

PN12

There are two dot points, the first is:

PN13

The company will open its books and make a schedule of arrangement which will guarantee employment entitlements into the future.

PN14

The second dot point says:

PN15

The parties agree to complete the above process by no later than one month following the certification of the agreement or earlier if possible.

PN16

Now, the agreement, Commissioner, was certified it appears by you on 7 April 2003 to come into force on that date, and it expires in November of this year. While we have the agreement I will take you to the disputes resolution procedure which is, as I said, over the page at page 20 and I won't take you through all the steps but 38.7 which is the clause we are relying on today states that:

PN17

If the grievance still exists, the matter may be referred to the Australian Industrial Relations Commission for decision ...(reads)... in accordance with the Act.

PN18

Now, the Commission will have seen that the security of employee entitlements clause requires what is called a scheme of arrangement to be put in place to ensure security of employee entitlements, and that to be completed by May 2003. The reason we are here, Commissioner, is that hasn't occurred and as it stands at the moment we still apprehend that the employees' entitlements, or the security of employee entitlements is under a cloud.

PN19

Can I say, Commissioner, the company employs approximately 100 members of the union. It is a company that makes suspension components for the major manufacturers and the company went into administration I think in 2001. I am not clear at the moment whether it has formally come out of administration, although it has been indicated to us that it is due to do so shortly. What precipitated this application perhaps goes back to May 2003 when the union became aware of suggestions that the company had undertaken - I am sorry, this is an earlier step in the process.

PN20

The union retained an accountant to meet with the company and that accountant met with the company's general manager at the time and its financial controller. And the accountant was informed - the union's accountant was informed that the company owned certain land and buildings which were subject to a floating charge held by a bank. There was a floating charge over the company's debtors and the company advised that employee entitlements had precedence over the floating charge that the bank enjoyed, and a report was duly prepared to the union advising the union of that position.

PN21

However, something changed between May and October 2003 and the union became aware of suggestions that there had been a radical restructure by the company and that restructure had a drastic effect on the employees' security of employee entitlements. Subsequently the union sought an urgent meeting with the company where it was confirmed that a substantial restructure had occurred. Again, the company agreed that a union appointed accountant could review the situation and examine the company's financial reports and have necessary meetings. Those meetings did occur and that examination did occur and - - -

PN22

THE COMMISSIONER: About what time was that?

PN23

MR BORNSTEIN: This was in late 2003, and what that established took the union and the employees somewhat by surprise, if I can put it politely. There had, in fact, been a radical restructure. The plant and equipment that the company owned, the employer company owned had been soled to a related company. The freehold land and the buildings that the company owned had been sold to another related company. So the employer company was, in a sense, stripped of very valuable assets.

PN24

The company debtors were now subject to what is called a factoring facility with I think the ANZ Bank. And I should just preface what I say about this by explaining that ordinarily company debtors are able to be accessed by employees if a company gets into an insolvency situation because employees have priority. Factoring is a relatively new trend which allows banks to, in effect, be assigned the right to collect those debts and to defeat any attempt by employees to get priority over the banks in relation to those debts. So factoring tends to send off certainly alarm signals in my mind and has the effect of ensuring the bank is able to defeat employee priorities over those debtors.

PN25

The third point about the restructure was that the money that the employer obtained through the sale of its plant, equipment, land and buildings was very substantial. It was used for two purposes: one is to retire debt, and there was substantial debt involved; and, secondly, it was used to pay a dividend to another company which is related to the group which is the ultimate holding company within this company structure. There are at least four companies that we are aware of within the structure. The ultimate holding company is a company called Murphy Group Holdings Proprietary Limited and they were paid by the employer $5 million. So the assets were sold and the money didn't go - didn't stay very long with the employer. It was hived off and claimed as a dividend to the holding company.

PN26

In addition, it was ascertained that the accounts of the company at 31 October 2003 - so we are still late last year - indicated there was very little cash in the bank. When the company was questioned about that, the advice that was received was it was the policy of the company to periodically remit funds to the holding company by way of dividends and other arrangements so that the employer company didn't retain much cash and didn't get a build up of cash.

PN27

Now, can I make some observations about what appears from that restructure. The restructure occurred I think, we are not sure but some time in 2003. It occurred without the knowledge of any of the company's employees or the knowledge of the union. There was no notification that it was proposed and no notification that it was in train. The effect of the restructure on the security of employee entitlements was absolutely devastating, in my submission. If the company had gone into administration following that restructure, employee entitlements would not be able to be met.

PN28

And can I interpose there that we calculate employee entitlements, the ordinary accrued entitlements to be in the vicinity of $1.5 million and redundancy entitlements approximately another $2.3 million. So we are talking about sums of substantial money. $3.8 million is our rough assessment of the entitlements employees would be entitled to if the company did, unfortunately, enter into voluntary administration.

PN29

At the time this restructure, which occurred without our knowledge, occurred the company was under a legal obligation in the EBA to introduce a scheme which did absolutely the reverse; in other words, to introduce a scheme which protected employee entitlements. That clause had been the subject of careful discussion and negotiation because the company had been in jeopardy. It had gone into voluntary administration and unsurprisingly the employees were concerned that they be protected in case that were to, unfortunately, recur.

PN30

So the effect of the restructure, on its face, was to deprive the company of cash from the bank, of assets, and to give the bank priority over claims in respect of debtors. And there ain't much left after you deal with all of that, and it is not surprising that the union and the workforce were and continue to be alarmed and very uneasy about the situation. Now, that is not to say the company has refused to talk about the issues or put up a brick wall. The company has had meetings and has shared information with the union and it did so in December late last year, where it heard some of the union concerns and indicated that it would, at the very least, in response to those concerns, move to terminate the factoring facility with the bank.

PN31

I think it indicated at that time that it would be concluded in January of this year. We are not clear at the moment whether that facility has, in fact, been terminated, although we believe steps have been taken to do so. We are just not clear, and whether it has been replaced by another facility we are not clear about and, if so, what the nature of that facility is. The company also sent a notice to all employees in the middle of January and I will tender that as well, if I can, Commissioner.

EXHIBIT #B1 JANUARY NOTICE TO ALL EMPLOYEES

PN32

MR BORNSTEIN: That notice said that Don Rankin was - it was a notice to all employees:

PN33

Don Rankin, SCA Accountants, are meeting with union solicitors to achieve an outcome on security of employee entitlements, which should be finalised by the end of January. Further, the company should be out of administration at this time. To date there has been no meeting between Don Rankin...

PN34

and I think that is a reference to Maurice Blackburn Cashman -

PN35

...although we are hopeful that that may occur shortly.

PN36

We are not clear yet whether the company is or is not out of administration at this time and perhaps that can be addressed by my friend today. The next part of the equation is that the company recently presented to the union a deed of guarantee between it and one of its related companies. And I should tender that as well.

EXHIBIT #B2 DEED OF GUARANTEE

PN37

MR BORNSTEIN: Now, that deed, as you can see on its face, is a deed between a company called SCA Machinery Pty Limited, the guarantor, and Suspension Components Australia Pty Limited, which is the employer company, as I have said. And SCA Machinery we understand is part of the relevant corporate group. I won't take you to all of the provisions of the agreement but simply to clauses 2 and 3, which are the substantive provisions. Clause 2, headed Guarantee, says:

PN38

Subject to clause 3, the guarantor guarantees to SCA the due and punctual payment of the employee entitlements required to be paid to or on behalf of the employees pursuant to the enterprise bargaining agreement upon a request being made by SCA.

PN39

So there is a qualification but subject to that qualification, the guarantor guarantees the payment of employee entitlements if a request is made by SCA. The precondition to the guarantee follows at clause 3 and that says:

PN40

SCA acknowledges and agrees that the guarantee, the terms of which are set out in clause 2, will only be enforceable in the event...

PN41

I will just read relevantly:

PN42

...in the event that SCA has first provided evidence to the satisfaction of the guarantor that it has exhausted and/or realised all of its assets and has no lawful means available to it by which to procure the funds necessary to pay the employee entitlements at the time owing.

PN43

Now, there is a number of what I call lawyer points which could be made about that qualification and I don't want to labour that. I will simply say that the qualifications, in our view, to the guarantee could string out any attempt to recover employee entitlements for a very long time and could have the effect of defeating any attempt to recover employee entitlements. But the greater difficulty we have with the guarantee is that we know nothing about the capacity of SCA Machinery Pty Limited to be able to meet the employee entitlements. We don't know whether - I will withdraw that. I will start again.

PN44

We know that SCA Machinery Pty Limited owns equipment because it was sold certain plant and equipment by the employer in those transactions I outlined. I believe that to be the case. But as late as yesterday we ascertained that the equipment owned by SCA Machinery is subject to a fixed charge by the bank. So again, a fixed charge in the event of insolvency defeats employee entitlements, has priority over employee entitlements. So again, although it appears that the company seems to be moving to assuage our concerns, this transaction or this contract is fundamentally flawed and, secondly, it has been given to us with no prior knowledge it was coming and no prior knowledge of what its contents would be, and no discussion about the capacity of SCA Machinery to deliver on the guarantee that it gives.

PN45

One would have thought if, in fact, the machinery company owns this equipment and the equipment is subject to a fixed charge by the bank, that the holding company, which received four or five million dollars in cash, might be a more appropriate company to provide a guarantee. But for reasons best known to Suspension Components, this guarantee has appeared, so our concerns remain as they were. Our concerns continue to be that if the company tips over today that there is no security whatsoever for employee entitlements because there is insufficient cash in the bank, there are no assets and there continues, I believe, to be a factoring facility.

PN46

And in the circumstances where this company has had the history it has had and has committed to improving the position of the employee entitlements, we are in a difficult position and for that reason we have come here. There are all sorts of other options, I may say, that the union could exercise. We haven't chosen to do that at this stage. We have made application to the Commission and we are not in a position to seek orders today but I can outline to you the nature of the orders that we would ultimately seek if this matter is heard and determined.

PN47

And those orders would include orders requiring a reversal of all the transactions that we complain of, so orders requiring the cessation of the factoring facility, the return of the cash that keeps being remitted to the holding company and the reversal of all other transactions which are likely to defeat employee entitlements in the event of insolvency. We will, in addition, be seeking an order that the company obtain a bank guarantee or, in the alternative, establish a trust and place the money that we say the employee entitlements constitute into that trust.

PN48

THE COMMISSIONER: Do you use the word in your submissions employee "entitlements" to include accrued entitlements as well as redundancy payments?

PN49

MR BORNSTEIN: We do at this juncture, yes. I have broken them up for you: 1.5 is the strict accrued entitlements, 2.3 is what is described by the Corporations Law as its contingent liability, contingent upon the company having to make everyone redundant, but we will be seeking to protect both categories of entitlements.

PN50

THE COMMISSIONER: Is it your understanding that that is how the words are understood arising from clause 35?

PN51

MR BORNSTEIN: Yes.

PN52

THE COMMISSIONER: Obviously, I will want the company to provide their point of view.

PN53

MR BORNSTEIN: There would have to be evidence about that and we would, if this case goes to full hearing, there will be a substantial amount of evidence. We will have to take you to that history about why that clause found its way into the agreement and what the negotiations entailed and what was meant, of course, Commissioner. I think that is absolutely necessary.

PN54

Commissioner, it is unfortunate because the company has - we are in a difficult position. The company has said we are willing to talk, we are willing to help, we will do what we need to, but it does so from a basis upon which it has engaged in conduct surreptitiously, covertly and, when I first examined the material, looked to me to be copycat Patrick's type conduct from 1998, where Patrick's stripped itself of all its assets and turned itself into pretty much a shell. And so it has created a great deal of agitation at the workplace and a great deal of agitation on our side of the bar table.

PN55

Having said that, as late as yesterday the company has indicated that it is willing to again enter into urgent negotiations and we seek to protect our position by bringing this application on, by advising the Commission of why we are here, but we are not averse to, obviously, trying to sensibly sort this out. If the company can, in those negotiations, satisfy us that protection can be afforded to employee entitlements so that the union can stand up and look at its members squarely and fairly and say your entitlements are now secure and here is why, in a transparent way, and we are now going to move forward in a much more productive way than has occurred in the past and there won't be restructures which occur behind people's backs, that is obviously most desirable.

PN56

The sooner that is done the better, and we will make ourselves available to conduct those discussions today and, if necessary, into next week. Subject to what my friend says, we are happy to go into either conciliation or some negotiations ourselves and we would ask at the very least that a report back be scheduled today to give us a timetable to work to. I would suggest no more than seven days. But we are willing to do that. If, in the event we cannot, through those discussions, reach a satisfactory outcome, we will be pressing forward with this application and bringing substantial evidence in the manner I have outlined.

PN57

It is perhaps best that I leave it there. I hope that you are now apprised of why we are here and it is perhaps best if I hand over to my friend to explain the company's position. If the Commission pleases.

PN58

THE COMMISSIONER: Yes. Thank you. Mr Sullivan.

PN59

MR SULLIVAN: Commissioner, I think the first thing the company would say is that it is trying to fulfil its obligation under the current EBA. There has been a bit of a change in management too. Mr Bennett, with me, has been on board since November of last year. It is from that time, from December where the company has endeavoured to resolve this issue by - and I will give you a list of meetings which I will submit to you in regard to the company having accountants to deal with the union accountants, dealing with the shop stewards and organisers to try and get resolution.

PN60

There has been some - through the whole format there has been quite a lot of variance about the expectation and what format it should take. My understanding was that late last year the union had thought that there were enough finances to cover the entitlements but since then had changed their mind and then looked at the - as was already described, that it needed to be changed. At that time there was communication from the CEO to Gayle Tierney; there was communication to the employees and the union and really advising them that for the three weeks over Christmas there was going to be a shutdown, so nothing could be done at that time.

PN61

The aim was to start negotiations immediately after, again with the people that they have vested the responsibility, the accountants, to come up with a scheme that would suit the employees, the union and the company. My understanding is there is a meeting today that is going ahead with the accountants and the solicitors to further advance that. But the company will assure the Commission that the CEO down really want to resolve this and it does welcome the Commission involvement, that we can first get a real clarification of the union position and what the union does want so that the company can then supply the union with that information, and that we do have a deed of arrangement that is suitable, and does close that part of the EBA off. So we are willing, or we would really welcome that there will be a report back, and we would like negotiations as soon as possible, Commissioner.

EXHIBIT #S1 CHRONOLOGY AND ATTACHED DOCUMENTS RE MEETINGS

PN62

MR SULLIVAN: And just in regards to that, Commissioner, there is one of the exhibits that the union have put up, we have got the similar one that is different. One says "accountants", the other one says "solicitors". There was one put out that was withdrawn. It was meant to be "accountants", that the two accountants would meet to come up with the deed.

PN63

THE COMMISSIONER: Yes, it would be useful, I think, if we moved into conference.

NO FURTHER PROCEEDINGS RECORDED

INDEX

LIST OF WITNESSES, EXHIBITS AND MFIs

EXHIBIT #B1 JANUARY NOTICE TO ALL EMPLOYEES PN32
EXHIBIT #B2 DEED OF GUARANTEE PN37
EXHIBIT #S1 CHRONOLOGY AND ATTACHED DOCUMENTS RE MEETINGS PN62