by MH Law | December 23, 2024 | Case Spotlight
Brief Facts
On 7.10.2019, the Company's board of directors announced that the Company was financially unable to continue its operations, resulting in the appointment of an interim liquidator. Following the liquidation, the Company halted its activities, leading to the dismissal of all employees. In response, the respondents, along with 347 former employees, submitted a representation to the Director General of Industrial Relations (DGIR), alleging unfair dismissal. This representation was then referred by the Minister of Human Resources to the Industrial Court. Dissatisfied with the Minister's decision to refer the case to the Industrial Court, the Company sought a judicial review of this decision. The High Court eventually overturned the Minister's decision, deeming it unreasonable and in violation of established laws, noting that the Minister was fully aware of the Company's liquidation at the time. Following the High Court's ruling, several former employees appealed to the Court of Appeal.
Court of Appeal
The Court of Appeal identified the main issues to be resolved as follows: –
Did the Minister properly exercise his discretion in referring the appellants' unfair dismissal claims to the Industrial Court, given that the Ex-Employees did not secure permission from the winding-up court under section 451 (2) of the CA 2016? (“Leave Issue”)
Are the Ex-Employees, having submitted proofs of debt to the liquidator, barred from pursuing proceedings in the Industrial Court against the company? (“Election Issue”)
Regarding the Leave Issue, the Court of Appeal thoroughly analyzed section 451(2) of the Companies Act 2016, which is quoted as follows:
“After the commencement of the winding up, no action or proceeding shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court may impose.”
The Court of Appeal affirmed that section 451(2) of the CA 2016 takes precedence over section 20(3) of the Industrial Relations Act 1967, which allows employees to file for reinstatement. Section 451(2) is a more specific provision addressing when proceedings can be initiated against a company after a winding-up order has been issued.
The Court of Appeal stated that the phrase “action or proceedings” in section 451(2) of the CA 2016 is broad enough to include all types of proceedings before a court, tribunal, or similar bodies with judicial or quasi-judicial authority. This undoubtedly includes the Industrial Court, which is officially tasked with handling industrial relations disputes.
Thus, the Minister, knowing that the Company was under liquidation, made a legal error and overstepped his authority by referring the case to the Industrial Court without first ensuring the Ex-Employees had obtained permission from the winding-up court.
Regarding the Election Issue, the Court of Appeal determined that by submitting the proof of debts, the Ex-Employees forfeited their right to proceed in the Industrial Court. Since reinstatement is no longer an option for the Ex-Employees and the only remedy they can pursue in the Industrial Court is financial compensation, this can be sufficiently addressed in the liquidation process.
In the end, the appeal was denied, and the HC Decision was sustained.
Key Takeaways
While the Court of Appeal affirmed that employees dismissed by companies undergoing liquidation must obtain permission from the winding-up court before their cases can be referred to the Industrial Court, their decision implies that potential claimants should promptly file their leave applications, considering the 60-day timeframe for employees to submit reinstatement representations under the Industrial Relations Act 1967.
The Court of Appeal's comments regarding the impossibility of reinstatement for liquidated companies were made in the context of voluntary winding-up, where no appeals or disputes related to the winding up are anticipated. The Court did not clearly indicate whether these observations also apply to contested winding-up situations, where a winding-up order might be stayed or overturned.
This decision highlights the importance of carefully choosing between remedies, such as filing proof of debt versus submitting a representation. Once a litigant opts for a particular course, they may be committed to it, sometimes to their disadvantage. Conducting a thorough risk assessment with appropriate legal counsel is essential for making an informed choice.
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