Company fined over $4 million by FWO for 'deliberately' underpaying employees
Restaurant chain Din Tai Fung has ended its operations across Australia after it was fined by the Fair Work Ombudsman (FWO) for underpaying employees, according to reports.
The head office of the restaurant chain in Taiwan told 7News that it had terminated its franchise rights in Australia.
Any future plans regarding the Australian market are still under evaluation, the head office told the news outlet.
The closure of Din Tai Fung restaurants across Australia comes after the FWO fined the food chain and two of its former officials over $4 million for deliberately underpaying employees.
Penalties recovered
Among those penalised was Sinthiana Parmenas, former HR coordinator of DTF World Square, which employed Din Tai Fung workers at the World Square shopping centre in the Sydney Central Business District (CBD), as well as the Chatswood and Emporium shopping centres in the Melbourne CBD.
The total penalties are the second highest ever secured by the Fair Work Ombudsman, the FWO previously noted in its media release.
According to the FWO, it has recovered and distributed a total of $197,316 of the fine, which was imposed on Parmenas and former general manager Hannah Handoko.
It told 7News, however, that the remaining $3.89 million in fines has yet to be recovered.
DTF World Square Pty Ltd and Selden Farlane Lachlan Investments Pty Ltd are both in liquidation and proofs of debt in respect of the penalties imposed by the Court have been lodged by the FWO, an FWO spokesperson told the news outlet.
To date, no distribution has been made by the liquidators in respect of debts owed to unsecured creditors of the companies.
Rise of new restaurant
Following the closure of Din Tai Fung outlets, 7News reported that a new restaurant, bearing many similarities to the Taiwanese food chain, has opened in its former locations.
The new restaurant is called Double Chin Eats, which records show shares the same address for service of documents, according to 7News. Both restaurants are also listed under the business name column of Skylar Finch Nien Investment Pty Ltd's ABN Lookup page.
One of the Double Chin Eats employees interviewed by 7News also revealed that they used to be employed by Din Tai Fung.
It used to be Taiwanese food, but now it's more diverse, with a broader range of Asian cuisine, the employee told the outlet.
The employee, however, clarified that it's not the same company.
These are two different companies, the employee told 7News. The new company bought everything from the old one, including the employees.
Is this potential phoenixing?
The rise of the second restaurant that bore many similarities to Din Tai Fung has raised concerns that it could be a potential phoenix activity.
The activity, which is an illegal practice, happens when an organisation's directors abandon the company or transfer the business of an existing company to a new company without paying true or market value, according to the Australian Securities and Investments Commission (ASIC).
Once the assets have been transferred, the old company is placed in liquidation or abandoned. If the liquidator is appointed, there are no assets to recover, which means creditors cannot be paid, ASIC said on its website.
Once the assets are transferred to a new company, the directors continue to operate the business. This gives the new business an unfair advantage when competing for work, because they have less debt and lower operating costs.
Jason Harris, a professor of corporate law at the University of Sydney, told 7News that he cannot confirm if Din Tai Fung committed a phoenix activity. However, he noted that the opening of Double Chin Eats at former Din Tai Fung locations is a pattern frequently used in phoenix activity.
Companies can fail and then their owners can start up a new company doing the same business in the same place and not be liable for the debts of the old company, Harris told 7News.
The problem arises when the owners/directors try to strip the old company of its assets by transferring them to the new company for less than market value (or for free). That is illegal, but the liquidator could then sue the new company and the old company directors for this conduct.
Dangers of phoenixing
The Australian Taxation Office (ATO) has previously warned that the total cost of illegal phoenix activity can reach $4.89 billion annually. This covers:
Cost to business from unpaid creditors of $3,300 million
Cost to employees through unpaid entitlements of $155 million
Cost to government of $1,440 million.
According to the ATO, the phoenix activity may also harm the community because:
Employees miss out on wages, superannuation and entitlements.
Other businesses are put at a competitive disadvantage.
Suppliers or sub-contractors are left unpaid.
The community misses out on revenue that could have contributed to community services.
If your business is insolvent or struggling to pay its debts, it's important to seek specialist advice from a qualified and registered insolvency practitioner, the ATO said. Registered liquidators and trustees will provide you with sound legal advice that you can rely on. Be wary of other insolvency advisers who suggest actions designed to help directors avoid paying their creditors.
The ATO said suspected cases of illegal phoenix activity may be reported to them, via a tip-off form, email, or phone number.
You can help us stop illegal phoenix activity by reporting it, the ATO said. We take all reports seriously.
https://www.hcamag.com/au/specialisation/employment-law/phoenix-activity-din-tai-fung-ends-operations-but-new-chain-moves-in-reports/527365
