Restructuring gig economy player with ATO, Fair Work, Transport Workers Union, and support from German parent company

Business profile

  • Technology platform for food delivery

  • Operated in Sydney, Melbourne and Brisbane Individuals on bicycles actioned delivery

  • Parent company Delivery Hero located in Germany

Background

Foodora Australia was a technology platform that connected users with local restaurants in Sydney, Melbourne and Brisbane, allowing them to order food delivered to their home by bicycle rider. The company announced its intention to cease operations due to a global restructure of the parent company, Delivery Hero.

The company facing two sets of proceedings. As such, the directors could not confirm the solvency of the company, resulting in appointing Worrells as administrators. The first set of proceedings was with the Fair Work Ombudsman in relation to work and employment practices. The second involved the Transport Workers Union with regards to an unfair dismissal claim.

Various government departments such as the ATO and Revenue NSW were alleging that riders were incorrectly classified as subcontractors as the nature of their treatment by the company indicated that they should be under employee contracts. A ruling to reclassify riders as employees would result in a significant unpaid liability with regards to PAYG, payroll tax and potentially outstanding employee entitlements.

Delivery Hero had also issued a letter of comfort just prior to the announcement that it was exiting the Australian market.

Worrells' actions

With the parent company located in Germany, Worrells managed the various legal aspects of dealing with overseas company officers, obtaining books and records and investigating potential recovery actions. These all required consideration of laws in different jurisdictions and with possible cross-border insolvency issues.

Administrators undertook investigations into the claims and determinations by the ATO, Fair Work Ombudsman (FWO), Fair Work Commission (FWC) and state revenue agencies. As part of this process, administrators also sought legal and expert accounting advice and formed the view that it was more likely than not that the Foodora Riders were deemed employees and not contractors as treated by the company.

As there were over 5,000 Riders, which had potential unpaid employee entitlement claims, Worrells held consultations with the ATO, FWO, FWC and TWU to calculate actual entitlements and build an electronic process for Riders to lodge their claims.

Administrators investigated their rights to call on the letter of comfort issued by Delivery Hero to achieve payment of potential contingent liabilities and engaged in extensive negotiations with the parent company to put together a Deed of Company Arrangement, which included a sizable contribution from Delivery Hero.

In addition to the standard investigations and negotiations, administrators also dealt with the two sets of proceedings involving the FWO in relation to work and employment practices and the second case involved the Transport Workers Union with regards to an unfair dismissal claim.

Outcome

The German parent company proposed a Deed of Company Arrangement which included a $3 million contribution from Delivery Hero.

Creditors voted to accept the Deed of Company Arrangement. The Deed of Company Arrangement resulted in a dividend return to the Riders of 31.7 cents in the dollar for unpaid employee entitlements and respective tax and superannuation.

Point of difference

Once the company was placed into administration, Worrells was faced with some significant political and legal issues in having to assess whether these subcontractors were employees. Once it was identified as employees, the administrators were faced with calculating entitlements and providing a distribution to employees from the funds provided under the Deed of Company Arrangement.

We leveraged our insolvency leading technology skills to design and build a multilingual platform that automated and simplified the process for lodgement of proof of debt, auto-calculated amounts for claimants, and achieved a significantly higher rate of claimants lodging a claim despite many of these former subcontractors living overseas and not speaking English. The distribution process was then automated through a dedicated EFT process undertaken in conjunction with Worrells’ banker, the Foodora system and Worrells' purpose-built insolvency system.

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