Who’s the Boss? Federal Court ruling protects lenders in corporate group insolvency dispute 

What you need to know

• In Brauer v Coburn Resources Pty Ltd [2026] FCA 1110, the Federal Court held that the holding company, not the operating subsidiary, was the true employer of 166 employees for the purposes of the employee priority provisions in Part 5.6, Division 6 of the Corporations Act 2001 (Cth).
• The decision reinforces the primacy of formal contractual arrangements. Where written employment contracts clearly name the employer and are not shams, the contractual position will ordinarily prevail.
• An "intelligible business objective" for the employment structure is a relevant consideration but is not a standalone test. Its absence may support an agency inference but does not automatically trigger one.
• The decision contrasts with Re Mosaic Brands Limited [2025] NSWSC 959, where the parent was held to be the true employer of employees nominally employed by an assetless subsidiary. The two cases illustrate that the analysis turns on substance and can cut either way.
• The identity of the true employer determines which entity's circulating assets bear the employee priority carve-out under sections 433 and 561, directly affecting secured creditor recoveries.
• Insolvency practitioners, secured lenders and corporate groups should assess and document group employment structures early (before enforcement, acquisition or appointment) to understand where employee priority claims will attach.

Introduction

The "true employer" in a group insolvency setting materially impacts any restructuring or insolvency. The question is the most consequential issue at the intersection of employment law and insolvency practice in Australia.

The doctrine arises because corporate groups frequently centralise employment with one entity while employees work for the benefit of other group members. When insolvency intervenes, the statutory priority regime in Part 5.6, Division 6 of the Corporations Act 2001 (Cth) means that the identity of the employer directly affects the distribution of circulating assets between employees (or the Commonwealth standing in their shoes under the Fair Entitlements Guarantee scheme) and secured creditors.

In Brauer v Coburn Resources Pty Ltd [2026] FCA 1110 (the Strandline decision), Justice Jackson of the Federal Court delivered a significant judgment reinforcing the primacy of formal contractual arrangements and the relevance of an "intelligible business objective" in determining the true employer. FEG unsuccessfully challenged the receivers' application. Ashurst Perkins Coie acted for the receivers and managers who brought the successful application.

Industry implications

The decision contrasts with Re Mosaic Brands Limited [2025] NSWSC 959, where Black J held that the parent company, rather than the named employer subsidiary (which had no bank account, revenue or assets), was the true employer. In Strandline, the holding company was the named employer with a legitimate business purpose, and the Court upheld the contractual position. The two decisions illustrate that the analysis turns on considerations of substance and can cut either way. There is no hard and fast rule.

The decision is relevant to a range of stakeholders in corporate group transactions and insolvencies.

For insolvency and restructuring practitioners, the decision reinforces the need to investigate group employment structures at the outset of any appointment. Under s 433 of the Corporations Act, receivers must pay employee entitlements from the circulating assets of the employer company before remitting anything to the secured creditor, with personal liability attaching for non-compliance. Where the contractual employer is an assetless holding company but another group entity holds the circulating assets, the true employer question is determinative of which entity’s waterfall bears the employee priority carve-out. In coordinated processes (where a receivership sale runs in parallel with a DOCA or administrators’ recapitalisation), receivers should seek judicial direction promptly where the answer is unclear, as the allocation of priority claims between group entities can materially affect realisations and deal structuring.

For secured lenders, the decision has direct implications for recovery analysis and deal structuring. Sections 433 and 561 subordinate a secured creditor’s claim over circulating assets to priority employee claims in certain circumstances, and the identity of the true employer determines which entity’s circulating assets are caught. Lenders should assess employment structures as part of pre-enforcement due diligence, particularly where security is taken over an operating subsidiary but employment is centralised at holding company level.

For corporate groups, the decision provides comfort that properly implemented employment arrangements at holding company level will be respected, but also highlights the importance of documenting the commercial rationale for those arrangements. Courts will look through formal contractual arrangements to identify the true employer based on the substance of the arrangement, principally:

• which entity paid remuneration;
• whether the named employer had assets or revenue; and
• whether it had any purpose beyond being an employer of record.

Key takeaways

1. Formal contracts matter: Written employment agreements clearly identifying the employer remain the starting point. Where contracts are not shams and were not entered into for an undisclosed principal, the contractual position will ordinarily prevail.

2. Intelligible business objective is a tool, not a test: The absence of a rationale may support an inference of agency, but is not a necessary element whose absence automatically triggers an agency finding.

3. Assignment clauses defeat the agency argument: A provision permitting the named employer to transfer or assign the contract to a subsidiary is inconsistent with that subsidiary already being the undisclosed principal.

4. Intercompany funding is not agency: Cash flows between group members to fund payroll are explicable by ordinary treasury arrangements, not by an inference that the paying entity was acting as agent.

5. Historical context matters: Even if a group's operations contract so that only one project remains, employment structures are assessed against their historical context.

6. Due diligence is essential: Lenders, purchasers and insolvency practitioners should assess employment structures early — before enforcement, acquisition or appointment — to understand where employee priority claims will attach.

For the "completists", a précis of the decision follows.

Background facts

The Strandline group

Strandline Resources Limited (SRL) was an ASX-listed mineral sands company. Its wholly owned subsidiary, Coburn Resources Pty Ltd (Coburn), operated the Coburn Mineral Sands Project in Western Australia. SRL had historically held interests in multiple projects, including Tanzanian exploration assets.

As head company, SRL conducted equity capital raisings on the ASX, guaranteed senior secured debt facilities obtained by Coburn (comprising a $150 million NAIF facility and a US$60 million bond facility), and advanced funds to Coburn via an intercompany loan which stood at approximately $207 million by insolvency.

Employment arrangements

From April 2021, SRL employed 166 persons under written contracts unambiguously naming SRL as the employer. Wages were paid from SRL's bank accounts; employee entitlements were recorded as liabilities on SRL's balance sheet; and SRL paid payroll tax and PAYG. Most contracts also permitted SRL to require the employee to perform services for related bodies corporate, and provided that the agreement could be transferred to a subsidiary, including Coburn.

Insolvency and the dispute

On 21 February 2025, receivers and managers from McGrathNicol were appointed over both SRL and Coburn. Both companies also entered voluntary administration; Coburn subsequently entered a deed of company arrangement while SRL went into liquidation.

The receivers sought a declaration that the Employees were employed by SRL (not Coburn) for the purposes of the employee priority provisions. The commercial consequence was stark: if the Employees were employees of Coburn, the Commonwealth's subrogated claims under the FEG scheme would take priority over secured creditors in the distribution of Coburn's assets. The Commonwealth was the active contradictor, its opposition resting on the arguments that:

• SRL had contracted with the Employees as agent for Coburn as undisclosed principal, with Coburn ultimately bearing the financial burden of employment and exercising control over Site Employees through the General Manager; and
• alternatively, the “conditional benefit principle” meant that Coburn, having received the benefit of the Employees’ work, should be bound by the corresponding obligation to pay their entitlements.

The Court's reasoning

Justice Jackson confirmed the established principles, namely that courts are entitled to consider the reality of purported contractual arrangements, even where no sham is alleged, by examining the substance and totality of the relationship. The High Court’s emphasis on contractual terms in WorkPac v Rossato and Personnel Contracting does not affect the true employer principles. However, His Honour cautioned against a “roaming inquiry beyond the contract” - where there is an extant written employment contract that is not a sham, the answer will readily be found in the document, unless the contract was made for an undisclosed principal.

The Court carefully considered the established indicia for determining the true employer:

• which entity paid remuneration;
• whether the putative employer had assets to meet entitlements;
• whether it had any purpose other than to be an employer of record;
• whether it exercised control over employees; and
• the existence of an “intelligible business objective” for the arrangements.

On the face of things, SRL was the employer. The formal documentation unambiguously pointed to SRL with the written contracts, payslips, bank accounts, balance sheet liabilities, PAYG contributions and employment policies all identifying SRL as the employer.

In assessing those matters, Jackson J considered the evidence under four headings:

• Funding arrangements: The Commonwealth argued that Coburn "ultimately bore the financial burden" of employment, an argument that Jackson J rejected as being too general in nature. After all, SRL had guaranteed the senior facilities, raised $122 million in equity in April 2021, received $43 million from disposing of Tanzanian assets, and the net flow of funds was from SRL to Coburn. Accrued employee entitlements were liabilities of SRL, and the intercompany loan was a "real asset" from which SRL could meet its obligations.
• Control: The Court gave limited weight to who it was that had control over employees, noting that to be a less relevant consideration where (as in the circumstances of SRL and Coburn) both entities were in the same group. Following the management chain led to SRL’s board, not Coburn.
• Terms of the employment agreements: The Court placed particular weight on the contractual provision permitting SRL to assign or transfer employment contracts to Coburn. This was "inconsistent with the proposition that SRL [was] entering into the contract as agent for Coburn", there being no need for such a clause if Coburn was already the principal.
• Intelligible business objective: The Court found a clear rationale for SRL to be the group employer, noting that it was the head company of a publicly listed group that had historically operated multiple projects. Even as operations contracted, the structure remained explicable by historical context and administrative convenience.

Jackson J distinguished cases where the putative employer was an assetless shell with no intelligible business objective. SRL, by contrast, had a market capitalisation of up to $409 million, conducted equity raisings, managed ASX compliance and had historically operated multiple businesses.

The Court ultimately dismissed the Commonwealth’s agency arguments. His Honour held that there was no basis to infer that SRL had contracted as agent for Coburn as undisclosed principal. Rather, the position was that:

• the funding arrangements reflected ordinary treasury practices within a corporate group, not agency;
• control provided little support given the intra-group context; and
• the assignment clauses in the employment contracts were inconsistent with Coburn already being the principal.

The Court declared that all 166 Employees were employees of SRL for the purposes of Division 6 of Part 5.6 of the Act and the Commonwealth was ordered to pay the receivers' costs.

Authors: Richard Johnson, Partner and Michael Sloan, Partner.