Phoenix in flames as David Graphics fronts the court

The term ‘phoenix’ refers to the new business entity that rises from the ashes after a company goes into administration, with the arrangement meaning employees of the original organisation are not paid the money owed to them.

In what may prove to be a classic case of the phoenix in action, Sydney prepress company David Graphics went into voluntary administration in 2003. It was immediately replaced with Digital Graphic Communication, which set up in the same premises and also inherited the equipment, assets and goodwill of the original business. It even inherited the same telephone numbers. The daughter of former operator, Alan David, proved to be the operating director of the new entity, while he was hired as a consultant.

What it didn’t inherit was the $90,000 worth of entitlements owed to 10 former employees, members of the AMWU.

However, the full bench of the NSW Industrial Court has decided that Digital Graphic Communication can be listed as a respondent to an unfair contracts case against David Graphics, concluding that there is an arguable case that the arrangement was a fraud to deny workers their entitlements.

Stephen Penning, law firm Turner Freeman, is responsible for representing the former employees of David Graphics and hails the decision, claiming it could set a legal precedent for similar cases in the future.

“It's an opportunity for the court to go behind the corporate veil, to lift the corporate veil, to look carefully at what occurred in the relationship between the liquidation of David Graphics and the establishment of another company, a different legal entity, Digital Graphics,” Penning said.

“It's very important in terms of the significant loss of employee entitlements. It allows the Australian Manufacturing Workers Union, on behalf of those workers, to seek to proceed in court.”

The AMWU has accused David Graphics of denying workers their super contributions, salaries and health fund premiums for more than a year. The administrator confirmed during the court case that a number of AMWU members had lost super entitlements and health fund contributions.

The decision is only a preliminary one and the full case against Digital Graphic Communication is yet to be proven. Legal firm Turner Freeman is pursuing an unfair contracts claim on behalf of the AMWU members who claim to have been unfairly denied $90,000 worth of entitlements.