ProvencoCadmus receiver KordaMentha wins court case over NZ$1.6 mln of preferential employee claims on behalf of ANZ

By Gareth Vaughan

ProvencoCadmus' receiver KordaMentha, on behalf of ANZ, has won a court case that hands NZ$1.6 million in preferential employee claims from 112 former ProvencoCadmus staff to the country's biggest bank.

In an Employment Court hearing, after the ex-ProvencoCadmus employees appealed an Employment Relations Authority ruling that went against them, Judge Christina Inglis has also weighed in on the side of the receiver.

Philip Skelton, a lawyer representing the ex-staff, told interest.co.nz his clients could only appeal Judge Inglis' judgement on a question of law, after the factual findings went against them, but they won't be doing so.

Owed NZ$23.8 million, ANZ pulled the plug on ProvencoCadmus in August 2009, tipping the company into receivership. The move came after ProvencoCadmus tried unsuccessfully to secure funding from its major shareholders Todd Capital and Navman founder Peter Maire. At the time of the receivership ProvencoCadmus chairman Rick Christie blamed an unsustainable debt burden, sluggish investment and product markets, and a weaker-than-expected trading performance for the company's demise. The ProvencoCadmus group was created through the May 2008 merger of Provenco and Cadmus who both had ANZ as their bank.

As well as losing any hope of getting the NZ$1.6 million, which stems from unpaid holiday pay, wages and redundancy compensation, the former ProvencoCadmus staff must cough up for KordaMentha's legal costs incurred defending the action.

"The receivers have successfully argued that the employees were employed solely by the holding company, ProvencoCadmus Limited, not by the 100% owned subsidiaries that held the accounts receivables and inventory," Skelton said.

"The fact that the employees were paid by the subsidiary companies and it was their work and effort that created the accounts receivable and inventory, was not enough to persuade Judge Inglis that the 'real nature' of the relationship was 'joint employment'. She said the employees signed a new contract as part of the Provenco and Cadmus merger that made the holding company the employer. For Judge Inglis, that was the end of the matter. Bank wins and employees miss out."

Now 'easy' to circumvent the Companies Act protection for employees wages and holiday pay

Skelton suggests the ruling means it has become very easy to circumvent Companies Act protection for employees wages and holiday pay.

"Just employ people through a holding company that has shares in the operating companies and the bank will get a priority over the inventory and accounts receivable," he said.

The seventh and most recent receiver's report from KordaMentha's Michael Stiassny and Brendon Gibson, dated October 1, 2012, notes NZ$19.95 million owed to the ANZ at that time, and says: "It is evident that there will be a significant shortfall to the bank."

Their sixth report, dated April 2, 2012, said at the date of their appointment ANZ was owed NZ$23.8 million. It had got back NZ$8.85 million at that stage.

One company has assets to meet employee claims, the other company doesn't

Under the Receiverships Act and Companies Act, employees are given preferential creditor status up to a specific amount each, which at the time of ProvencoCadmus' demise was NZ$16,420. KordaMentha accepted the amounts claimed as legitimate. However, the receiver argued that before the receivership, the staff were employed solely by holding company ProvencoCadmus, whereas the staff themselves maintained they were employed by ProvencoCadmus and at least one of the subsidiary operating companies.

"The identity of the employer/s is relevant for one simple reason - the first defendant ( ProvencoCadmus Limited) has no assets from which the plaintiffs' preferential claims can be met. The second defendant (Provenco Payments Limited) does," Judge Inglis said.

The employees also alleged ProvencoCadmus engaged in misleading or deceptive conduct, in breach of the Fair Trading Act. However, the Judge noted there was no suggestion that restructuring at the ProvencoCadmus group, which formed the background context to the court case, took place with the intention of defeating preferential employee claims in the event receivers were appointed.

"While I accept that a number of the plaintiffs had been involved in numerous company name changes over time, the evidence established that it had been made clear to staff that the underlying purpose of the restructuring was to form a newly merged entity and that they would be employed by this entity," Judge Inglis said.

"This was known to them at the time the key differences document was posted on the intranet and is relevant to an assessment of what a reasonable person, in the plaintiffs' shoes, would have taken from it."

Ultimately Judge Inglis ruled the plaintiffs weren't jointly employed by ProvencoCadmus and Provenco Payments, rather their sole employer was ProvencoCadmus. And nor did ProvencoCadmus engage in misleading or deceptive conduct towards them.

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