Commonwealth cannot leapfrog Coburn’s secured creditors

The Federal Court has ruled that Strandline Resources Limited, rather than operating subsidiary Coburn Resources Pty Ltd, was the employer of 166 workers for insolvency priority purposes, rejecting the Commonwealth's attempt to obtain priority over certain Coburn assets for employee entitlement claims. Justice Jackson found that the employees' written contracts, payroll arrangements and the group's corporate structure all pointed to Strandline as their true employer. The ruling means the Commonwealth, pursuing recovery by subrogation to employee claims, will not obtain the priority over secured lenders that would have arisen if the workers had been employed by Coburn.

The dispute arose after Robert Brauer, Jason Preston and Linda Smith of McGrathNicol were appointed receivers and managers of Strandline and Coburn on 21 February 2025. Both companies also entered voluntary administration that day, with Thomas Birch and Jeremy Nipps of Cor Cordis appointed. Coburn later entered a deed of company arrangement, while Strandline went into liquidation.

Coburn operated the Coburn Mineral Sands Project in Western Australia. The Commonwealth argued that Strandline had entered the employment contracts as agent for Coburn, particularly because most employees worked exclusively on the project and Coburn ultimately funded much of the payroll.

Justice Jackson rejected that argument. Every employee had a written agreement naming Strandline as employer, wages and payslips came from Strandline, and employee liabilities were recorded on Strandline's balance sheet. Strandline also handled payroll tax, PAYG, human resources and incentive arrangements.

The Court found that transfers from Coburn to Strandline for payroll were part of the group's intercompany funding arrangements, not evidence that Coburn was the true employer. Coburn owed Strandline approximately $207 million when the receivers were appointed, and payroll transfers reduced that intercompany debt.

Justice Jackson also placed weight on employment provisions allowing Strandline to assign workers to subsidiaries, including Coburn, finding there would have been little reason for such a clause if Coburn were already the undisclosed principal.

The Court also rejected the Commonwealth's alternative reliance on the "conditional benefit principle", finding there had been no assignment, novation or similar transfer of Strandline's contractual rights to Coburn.

As a result, the Court declared that all 166 workers were employees of Strandline, not Coburn, for the purposes of employee priority provisions in the Corporations Act. The Commonwealth was ordered to pay the receivers' costs.

Ashurst Perkins Coie acted for the receivers, Robert Brauer, Jason Preston and Linda Smith of McGrathNicol, with Wayne Zappia SC and Anna Pieniazek of Shoreline Chambers appearing as counsel.

Thomsons (Eden Bird) acted for the Commonwealth, with Konrad de Kerloy SC of Fourth Floor Chambers appearing as counsel.