Fair Work Ombudsman dipping its toe in the murky waters of ‘appropriate’ advice.
Much publicity surrounds the appropriate level of an advisor’s involvement in their clients’ businesses.
This was brought into sharp focus in the decision of the New South Wales Supreme Court in the Somerville matter back in 2009, which all professional advisors must be across.
As a brief recap, Somerville was a solicitor who the Australian Securities and Investments Commission (ASIC) successfully prosecuted as an accessory to the directors’ breaches of duty regarding fraudulent phoenix activity. In this matter, Somerville not only provided advice to the directors on what course of action to take, but was actively involved in implementing the arrangements giving rise to the breach.
Much of the recent focus on advisors’ possible exposure has arisen due to the increased regulatory focus on phoenix activity and the advice from ASIC and the Australian Taxation Office, which closely monitors what it considers to be phoenix activity.
Historically, the Fair Work Ombudsman (FWO) that governs the Fair Work Act 2009 has not been ‘front and centre’ in discussions surrounding advisor liability and/or phoenix activity, however, in recent years a shift in its approach is appearing.
An increased focus is not surprising given the FWO commissioned a report in 2012 that estimated lost employee entitlements due to phoenix activity was between $191,253,476 and $655,202,019 annually. This report came on the heels of a Melbourne University report prepared for the FWO that appears to encourage the FWO to look at the prosecution of what it described as “external gatekeepers”, which included accountants, auditors, and legal advisors, using the Fair Work Act’s accessorial liability provisions.
Accessorial liability is dealt with (for the most part) in section 550 of the Fair Work Act, which provides:
(1) A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.
(2) A person is involved in a contravention of a civil remedy provision if, and only if, the person:
(a) has aided, abetted, counselled or procured the contravention; or
(b) has induced the contravention, whether by threats or promises or otherwise; or
(c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
(d) has conspired with others to effect the contravention.”
Notably, accessorial liability is also found in section 79 of the Corporations Act 2001.
In addition to the legislative weaponry that may be available to the FWO, the courts have indicated willingness to accommodate the FWO should it wish to pursue parties other than corporations. Many instances of successful prosecutions of directors exist and occasionally employees.
Where liability might evolve to is evident in the matter of Fair Work Ombudsman v Jooine (Investment) Pty Ltd (2013) FCCA, which involved sham contracting. Here the Court made a point of commenting that any penalty imposed “should also extend to the advisors who have facilitated the orchestration of these scams”.
While in this matter the FWO did not take action against the legal advisor in question, it shows the courts’ attitude to advisors’ liability.
Recently, the FWO commenced proceedings against a Victorian accounting firm, while not related to phoenix activities, is also perhaps a sign of actions to come.
A brief background is as follows:
- The accounting firm, Ezy Accounting 123 Pty Ltd (“Ezy”) provided payroll services to Blue Impression Pty Ltd, which operated a fast food outlet in Melbourne.
- Blue Impression Pty Ltd allegedly underpaid two workers on 417 working holiday visas.
- Ezy allegedly processed wage payments knowing the rates were below the lawful minimum.
- Consequently, Ezy Accounting faces penalties up to $51K per contravention.
In response, the FWO’s press release stated: Small business relies heavily on trusted advisors, and if they give incorrect or bad advice, or deliberately assist with the contravention, should they not be held accountable? In situations where we believe accountants or other professionals knowingly facilitate contraventions of workplace laws, we are prepared to hold them to account.
As advisory/turnaround work increases for many firms and with the proliferation of pre insolvency advisors, increased care must be taken to ensure advisors do not step over the murky line between what constitutes an appropriate level of advice and being seen to be the architect and driver of legislative contraventions.
While prosecuting directors and advisors’ unlawful conduct is both important and likely to increase, it equally important the regulators don’t become overzealous that advisors become deterred from assisting clients when confronted with insolvency issues or otherwise.