Anderson v Queensland Building and Construction Commission [2018] QCAT 327

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL CITATION: Anderson v Queensland Building and Construction Commission [2018] QCAT 327 PARTIES: DEREK ANDERSON (applicant) v QUEENSLAND BUILDING AND CONSTRUCTION COMMISSION (respondent) APPLICATION NO/S: OCR042-16 MATTER TYPE: Occupational regulation matters DELIVERED ON: 25 September, 2018 HEARING DATE: 26 April 2017 HEARD AT: Brisbane DECISION OF: Member Ann Fitzpatrick ORDERS: 1. The Decision of the Queensland Building and Construction Commission, made on 29 February 2016, to refuse to categorise Derek Anderson as a permitted individual is confirmed. CATCHWORDS: BUILDERS LICENCING – PERMITTED INDIVIDUAL – where the QBCC refused to declare the applicant to be a permitted individual – where the builder had not made appropriate provision for Commonwealth and taxation debts Queensland Building and Construction Commission Act 1991 (Qld) ss56AC, 56AD Queensland Building and Construction Commission ad Other Legislation Amendment Act 2014 (Qld) s54(4) Queensland Civil and Administrative Tribunal Act 2009 (Qld) ss20 and 24 Alafaci v Queensland Building and Construction Commission [2015] QCATA 23 Cats v QBSA [2008] QCCTB 22 Dellaway v QBSA [2007] QCCTB 181 Hyde v QBSA [2003] QBT 30 Queensland Building and Construction Commission v Jensen [2014] QCATA 28 Queensland Building and Construction Commission v Vadasz [2014] QCATA 001 Rich v State of Queensland & Ors; Samin v State of -- 1 of 18 -- 2 Queensland & Ors [2001] QCA 259 Younan v QBSA [2010] QDC 158 APPEARANCES & REPRESENTATION: Applicant: Self-represented Respondent: Ms Jodie Stroud, In-House Counsel for the Queensland Building and Construction Commission REASONS FOR DECISION Nature of Application [1] A liquidator was appointed to Classic Stone QLD Pty Ltd (Classic Stone) on 1 June 2015. The applicant, Mr Anderson was at all relevant times a Director of that company. [2] This matter involves a review of a Decision of the Queensland Building and Construction Commission (QBCC), dated 29 February 2016 to refuse to categorise Mr Anderson, as a permitted individual for a “relevant event”, within the meaning of Section 56AD of the Queensland Building and Construction Commission Act 1991 (the QBCC Act). [3] The decision followed an application by Mr Anderson on 14 July 2015, to be categorised as a permitted individual and an internal review of the QBCC’s original decision. [4] The Tribunal has conducted a fresh hearing on the merits.1 [5] The role of the Tribunal is “to produce the correct and preferable decision”.2The Tribunal may confirm or amend the decision, set the decision aside and substitute its own decision or set the decision aside and return the matter to the decision maker for reconsideration.3 Legislative Framework [6] This matter falls within the transitional provisions of the Queensland Building and Construction Commission and Other Legislation Amendment Act 2014 (Qld). In accordance with s54(4) of that Act, the version of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act), in force immediately before the commencement of the relevant amended sections of the QBCC Act on 1 July 2015 applies. That is the version of the QBCC Act to which I refer. [7] Section 56AC of the QBCC Act relevantly provides: “Excluded Individuals and Excluded Companies 1 Section 20 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld). 2 Section 20 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld). 3 Section 24 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld). -- 2 of 18 -- 3 … (2) This section also applies to an individual if - (a) after the commencement of this section, a company, for the benefit of a creditor - (i) has a Provisional Liquidator, Liquidator, Administrator or Controller appointed; or (ii) is wound-up, or is ordered to be wound-up; and (b) five years have not elapsed since the event mentioned in paragraph (a)(i) or (ii) (Relevant Company Event) happened; and (c) the individual - (i) was, when the Relevant Company Event happened, a Director or Secretary of, or an influential person for, the company; or (ii) was, at any time after the commencement of this section and within the period of one year immediately before the Relevant Company Event happened, a Director or Secretary of, or an influential person for, the company. … (4) If this section applies to an individual because of subsection (2), the individual is an excluded individual for the relevant company event. … (6) A company is an excluded company if an individual who is a director or secretary of, or an influential person for, the company is an excluded individual for a relevant event. ….” [8] Section 56AD of the QBCC Act provides: “Becoming a Permitted Individual (1) An individual may apply to the commission…to be categorised as a permitted individual for a relevant event if the individual has been advised by the commission, or has otherwise been made aware, that the commission considers the individual to be an excluded individual for the relevant event. … (8) The commission may categorise the individual as a permitted individual for the relevant event only if the commission is satisfied, on the basis of the application, that - … -- 3 of 18 -- 4 (b) the individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event. (8A) For sub-section (8)(b), in deciding whether an individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of a relevant event, the commission must have regard to action taken by the individual in relation to the following - (a) keeping proper books of account and financial records; (b) seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business; (c) reporting fraud or theft to the police; (d) ensuring guarantees provided were covered by sufficient assets to cover the liability under guarantees; (e) putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amount; (f) making appropriate provision for Commonwealth and State taxation debts. (8B) Nothing in sub-section (8A) prevents the commission from having regard to other matters for deciding whether an individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of a relevant event. (9) If an individual is categorised as a permitted individual for a relevant event, the individual is taken not to be an excluded individual for the relevant event.”4 Matters for determination [9] Pursuant to s56AD (1) of the QBCC Act, I must determine: (a) the relevant event; (b) the circumstances that resulted in the happening of the relevant event; (c) whether Mr Anderson took all reasonable steps to avoid the coming into existence of those circumstances; and (d) if the threshold issue is satisfied, whether my discretion should be exercised to classify Mr Anderson as a permitted individual.5 4 QBCC Act current as at 1 January 2015. 5 Younan v QBSA [2010] QDC 158 at [26], unaltered by Younan v QBSA [2011] QCA 1 -- 4 of 18 -- 5 Relevant event [10] It is common ground that the relevant event was the appointment on 1 June 2015 of liquidators to Classic Stone. [11] The amount owed to unsecured Creditors at the time of the relevant event was approximately $1,265,560.00. 6 Evidence [12] Mr Anderson gave evidence at the hearing. The materials relied upon by Mr Anderson were made Exhibits in the proceeding, to which I have referred. In particular, forming part of Exhibit 1 is a Statutory Declaration of Mr Anderson dated 11 July 2015. [13] Mr Mohamed Radwan, Chartered Accountant, gave evidence for Mr Anderson. A statutory Declaration by Mr Radwan dated 10 July 2015 forms part of Exhibit 1. Mr Radwan also gave a statement dated 30 August 2016 forming part of Exhibit 3. [14] Also included in the documents compiled as part of Exhibit 1 is a Statutory Declaration of Margaret Markellos, Bookkeeper, dated 8 July 2015. Ms Markellos was not called to give evidence. [15] Mr Ryan Baker, Senior Licence Entitlement Officer, QBCC, gave evidence. Mr Baker first assessed the Permitted Individual Application. That decision was the subject of an internal review by the QBCC. Mr Baker filed a further statement made on 15 December 2016 – Exhibit 5. [16] Materials relied upon by the QBCC were made Exhibits in the proceeding, to which I have referred. In particular, the QBCC Statement of Reasons forms part of Exhibit 6. Circumstances that resulted in the happening of the relevant event What Mr Anderson says were the circumstances [17] In the Permitted Individual Application7, Mr Anderson attributes the main cause of the relevant event to be the liquidation of a company Glenzeil Pty Ltd (Glenzeil) on 8 September 2014. [18] Mr Anderson attributes other secondary causes of the relevant event to be: (a) negligence by a subcontractor Slipstop Australia Pty Ltd (Slipstop); (b) non-payment of contract moneys and liquidated damages claim by the Applicant against Buildcorp Pty Ltd (Buildcorp); and (c) increased pressure by the Australian Taxation Office (ATO): (i) for the Company to pay outstanding taxation; and 6 Report to Creditors of Ashton Brailey & Co dated 4 June 2015. 7 ID5 to ID 8 of the Respondent’s Index of Documents dated 28 April 2016 - Exhibit 6 in the proceedings. -- 5 of 18 -- 6 (ii) personally, on the applicant to pay Director Penalty Notices (DPNs). [19] A relevant timeline of events emerges from the uncontested evidence as follows: (a) 2012 – 2013 Classic Stone ceased building work due to poor trading conditions as a result of the global financial crisis; (b) 23 March 2013 – Classic Stone debt to ATO - $18,609.938; (c) 24 August 2013 debt to ATO increased to $45, 286.199 taking into account general interest charges, pay as you go tax withheld and a penalty for failure to lodge a business activity statement; (d) 26 August 2013 - Classic Stone entered a written subcontract with Glenzeil for the supply and installation of tiling for the Plaza South Brisbane Project. Contract price $1,165,824.29 plus GST; (e) 10 April 2014 - Classic Stone entered into a $619,816.00 written Subcontract with Buildcorp for the supply and installation of tiling at 140 Creek Street; (f) mid-June 2014 Buildcorp required a slip test after 35% of tiling had been completed. Buildcorp was not satisfied and a subcontractor, Slipstop was engaged to treat the tiled floor by applying a slip-resistance material onto the newly installed 1,100m2 granite floor. Losses of $574,869.57 were incurred by Classic Stone over the period to May 2015 as a result of the following:  Slipstop used a chemical which stained and edged the floor causing the whole of the floor to require honing with repair costs in excess of $100,000.00; Slipstop abandoned the project and referred the matter to its Insurer;  as a result of delays, Buildcorp incurred a liability to the building owner for liquidated damages. It claimed liquidated damages from Classic Stone and refused to make the final payment of $188,563.21, plus retentions due under the Subcontract;  recovery attempts made against insurers and by adjudication against Buildcorp were unsuccessful. (g) 18 July 2014 the debt to the ATO increased to $60,024.85 taking into account general interest charges and penalties for failure to lodge activity statements; (h) invoice No 0554, dated 28 July 2014 to Glenzeil Pty Ltd in the amount of $294,407.70 due September 2014; (i) invoice No 0559, dated 26 August 2014 to Glenzeil Pty Ltd in the amount of $223,588.73 due October 2014; 8 Australian Taxation Office Tax Agent Portal – Itemised account attached to the Statutory Declaration of Mohamed Radwan – Exhibit 3. 9 Ibid. -- 6 of 18 -- 7 (j) 8 September 2014 – Glenzeil unexpectedly put into liquidation leaving Glenzeil invoices unpaid; (k) 12 September 2014 - Classic Stone issued a Subcontractors Charge pursuant to the Subcontractors Charges Act 1974 (Qld) and engaged lawyers to recover the debt; (l) 23 September 2014 - Peter Green Accountants lodged all outstanding taxation returns with the ATO following 9 months of work by Classic Stone’s bookkeeper correcting data entry;10 (m) 23 September 2014, Classic Stone owed the ATO $267,158.11 taking into account general interest charges and penalties for failure to lodge activity statements. The significant increase over a period of 2 months from July 2014 related to pay as you go tax withheld, in an amount of approximately $122,952.00. The effective or due dates for pay as you go tax withheld shown on the ATO integrated account11 are August, September, November and December 2013 totalling $34,114.00 and February, May, June and August 2014 totalling $68,240.00. Mr Anderson’s evidence is that pay as you go tax withheld related to staff engaged for the Glenzeil project. (n) invoice No. 0562 to Glenzeil, dated 25 September 2014 in the amount of $24,377.00 which went unpaid; (o) late September 2014 - Mr Anderson instructed Mr Radwan, Chartered Accountant to negotiate a payment arrangement with the ATO; (p) from July 2013 to December 2014 Directors Penalty Notices were issued to Mr Anderson, totalling $154,034.09. (q) February 2015 - Mr Anderson assumed conduct of the negotiations with the ATO; (r) 27 February 2015 Classic Stone’s bookkeeper lodged a late progress claim with Hutchinson Builders delaying payment of $160,000.00 until the end of the following month which impacted on the ability of Classic Stone to make an instalment payment to the ATO; (s) 10 March 2015 - Mr Anderson negotiated a payment arrangement with the ATO based upon anticipated recovery of funds from Slipstop and its insurance company; (t) mid-April 2015 - it was becoming obvious that it was increasingly less likely there would be any recovery of moneys to Classic Stone sufficient to pay the ATO; 10 Evidence in chief of Derek Anderson; Statement of Mohamed Radwan dated 30 August 2016 part of Exhibit 3. 11 Attachment 1 to the Statutory Declaration of Mohamed Radwan made 10 July,2015 – Exhibit 1. The document is barely legible. Figures extracted are intended as approximate amounts to take account of discrepancies arising from legibility. -- 7 of 18 -- 8 (u) negotiations continued with the ATO to allow Classic Stone time to recover moneys owed by Glenzeil, Classic Stone’s Insurer, Slipstop and Buildcorp; (v) advice from Classic Stone’s Accountant and a range of Solicitors and Liquidators to pay the ATO the outstanding amount or place the company into liquidation; (w) mid-April 2015 – unsuccessful attempt to borrow funds to pay the ATO debt; (x) from 13 October 2014 to 8 April 2015, 10 payments were made to the ATO totalling $95,576.00. (y) 6 May 2015 - advice received that the sum of $69,982.02 would be recovered from Glenzeil in liquidation. Mr Anderson anticipated recovery of a further amount of $140,000.00 at the completion of the Defects Liability Period in September 2015; (z) in the period from September 2014 to 8 May 2015 the debt to the ATO increased to $559,627.34 taking into account general interest charges and pay as you go tax withheld; (aa) from 1 July 2014 to the date of liquidation Mr Anderson lent Classic Stone $162,222.56; (bb) at the time Classic Stone was placed into liquidation it was completing a subcontract with Lend Lease at The Green Residential Apartments Project worth approximately $1.6 million. Classic Stone had been awarded 2 subcontracts with Hutchinson Builders valued at $1,340,750.78 and $2,725,791.74 respectively to start in mid and late 2015. (cc) 15 May 2015 - decision to wind-up Classic Stone’s business; (dd) 1 June 2015 appointment of liquidator; (ee) total amount owing to unsecured creditors as at the date of liquidation $1,265,560.98. Total receivables as at the date of liquidation alleged to be $865,422.72. In addition, Classic Stone was entitled to recover retention moneys on projects totalling $103,328.00. What QBCC says were the circumstances [20] Mr Baker’s evidence is that the circumstances which resulted in the relevant event were:  first, undercapitalisation, as from 2012;  secondly, outstanding taxation obligations;  thirdly, the liquidation of Glenzeil Pty Ltd resulting in the inability of Classic Stone to recover moneys owing. [21] In closing submissions, the QBCC acknowledged Mr Anderson’s evidence that he was experienced, had the capacity to determine what working capital the company required and that he would use his own funds to assist the working capital of the -- 8 of 18 -- 9 company as needed. The QBCC concluded that the company was sufficiently capitalised for the work it undertook. [22] The QBCC submitted that the main issue is that the company did not make appropriate provision for Commonwealth taxation debts. [23] The QBCC does however, remain critical of the financial profitability of Classic Stone. [24] Mr Baker analysed the financial statements of Classic Stone and asserts that: (a) as at 30 June 2010, there was a shortfall of net assets and a slight shortfall of current assets; (b) as at 30 June 2013, there was a substantial shortfall of net assets and a deficient current ratio; (c) the company made a loss in each financial year since 30 June 2013; (d) the Balance Sheets for the company for the period demonstrate that the company was under-capitalised from at least the 2012 financial year. The company had a shortfall in assets and a current ratio of less than 1:1. It could therefore not pay its current liabilities from its assets. [25] Exhibit 4 is a table of financial statements created by Mr Baker from Mr Anderson’s material, which sets out assets, liabilities, income, cost of sales, expenses and net profit for the financial years ended 30 June 2010, 2011, 2012, 2013, 2014 and 2015. The table supports the evidence of Mr Baker in relation to losses sustained by Classic Stone. [26] Mr Anderson disputed in evidence that in the 2013 financial year, there was a loss, on the basis that it was only a Directors’ bonus which gave that impression. Mr Anderson put it to Mr Baker in cross-examination that ignoring the Directors’ bonus the company, in fact, made a profit. Mr Baker responded that was irrelevant and that the financial statements reveal the company made a loss. Mr Baker gave evidence that the capital base of the company was reducing each year. Mr Anderson put it to him that the Directors put back funds to support that position and that it is the choice of the company to say where its funds are held. [27] Mr Baker gave evidence that the company could not hold a licence with the Balance Sheets disclosed by Mr Anderson, which I take to be a reference to the QBCC Policy in relation to minimum financial requirements for licence holders whereby the ratio of current assets to current liabilities must be 1:1. [28] In relation to the 2015 financial statements, Mr Anderson put it to Mr Baker that the figures were grossly incorrect. Mr Baker responded that he had referred to Classic Stone’s own documentation. [29] Mr Radwan gave evidence that the 2015 financials were inaccurate and that the company had not made losses of $727,000.00. He was unable to say why the financials were wrong in that respect. -- 9 of 18 -- 10 [30] Mr Baker’s evidence referred to the writing-off of significant bad debts in 2013 and 2014 of $352,234.00 and $204,548.67 respectively. He says that is especially relevant as the company did not write-off the amounts owing from Glenzeil and Buildcorp in the 24 June 2015 accounts, which had the effect of overstating the financial position of the company by approximately $700,000.00. His evidence is that even with the Glenzeil and Buildcorp debts included in the 24 June 2015 accounts the company had made significant losses throughout the year which cannot be attributable only to the problems relating to Glenzeil and Buildcorp. In other words, there were other significant losses incurred by the company. [31] The QBCC made the point in closing submissions that no information or evidence has been provided as to these debts and why they were written-off. [32] I accept the evidence of Mr Baker in relation to the financial circumstances of Classic Stone for the period 2012 to 2015. I find that Exhibit 4 is an accurate reflection of the losses recorded each year by the company. Even if I were to accept the assertion by Mr Anderson that bonuses paid out to Directors should be reversed to reveal actual profit that would still leave the 2013 year in a loss situation. The 2014 year would result in a modest profit. If it is the case that losses are incorrectly recorded in the 2015 financial statements, I would expect some explanation for the error, none was forthcoming. I rely on the financial statements as prepared for Classic Stone and presented to the QBCC for the purpose of considering the permitted individual application by Mr Anderson. Conclusion in relation to the circumstances that led to the happening of the relevant event [33] I largely accept the evidence of Mr Baker as to the circumstances which led to the happening of the relevant event. I find that the financial statements reveal the company was undercapitalised, even with the extent of Director’s loans made by Mr Anderson. I find that the company had no reserves to meet its taxation obligations and no ability to manage the losses arising from the Glenzeil liquidation or the problems on the Buildcorp project involving Slipstop. I agree with the QBCC’s submissions that the large unexplained write offs in 2013 and 2014 affected its ability to meet its obligations. However, I am inclined to place equal weight on the failure of Classic Stone to make appropriate provision for Commonwealth taxation as a circumstance which led to the happening of the relevant event. [34] I find that there are two principal circumstances which led to the relevant event. First, a lack of capital reserves in the company over the period during which it traded from 2012. I find that the other cause of the relevant event was a failure of the company to make appropriate provision for Commonwealth taxation debts. Certainly, there has been an unfortunate confluence of events with the occurrence of the Glenzeil liquidation and the Buildcorp losses coming close together. However, the rapidly increasing size of the taxation debt and the Directors Penalty Notices is the issue which tipped the company into liquidation. Mr Anderson’s evidence is to the effect that the size of the Directors Penalty Notices was the main motivation for appointment of a liquidator.12 12 Paragraph 5.1.6 Statutory Declaration of Derek Paul Anderson, dated 11 July, 2015 -- 10 of 18 -- 11 Did Mr Anderson take all reasonable steps to avoid the circumstances that led to the happening of the relevant event? Principles relevant to whether all reasonable steps were taken [35] In the written submissions handed to me at the hearing, the QBCC refers to the following propositions: (a) a person may only be categorized as a Permitted Individual if they took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the relevant event;13 (b) it is not a question of whether the Applicant did everything possible to prevent the circumstances from arising, or whether they would have arisen if he had acted differently;14 (c) what were reasonable steps depended on what was reasonable for the individual concerned in the circumstances in which he found himself, with such information as he then had;15 (d) what steps are reasonable are to be considered from the position of a reasonable builder in the shoes of the Applicant;16 (e) the reasonable steps are those to avoid the coming into existence of the circumstances that resulted in the relevant event, not the relevant event itself;17 (f) what amounts to reasonable steps involves investigation of the nature of the harm, the foreseeability and degree of risk of it happening and the measures reasonably available for preventing or averting it;18 (g) the reasonableness of his behaviour must be assessed by reference to what was known by him at the time without the benefit of hindsight.19 [36] I accept those submissions as an appropriate guide in this case. [37] Of the matters which I am required to address referred to in s56AD (8A) of the QBCC Act questions of reporting fraud and ensuring sufficient assets to cover guarantees are not relevant. The other matters are addressed below. Keeping proper books of account and financial records 13 Cats v QBSA [2008] QCCTB 22 at [13] 14 Younan v QBSA [2010] QDC 158 at [26] 15 Ibid at [26] 16 Hyde v QBSA [2003] QBT 30 at [58] – [60] 17 Dellaway v QBSA [2007] QCCTB 181 at [7] 18 Rich v State of Queensland & Ors; Samin v State of Queensland & Ors [2001] QCA 259. 19 Younan; op.cit at [26] -- 11 of 18 -- 12 [38] The QBCC submitted that it is now satisfied that the company did keep proper books and records, although some systems were not up-to-date. [39] The evidence of Mr Anderson and Mr Radwan is that the company did keep proper books and records and that where errors were found, appropriate steps were taken to rectify those errors. I find that Mr Anderson did ensure that the company kept proper books of account and financial records, however I do not accept that the time taken in data entry of approximately 9 months was a reasonable period of time for the company to put its affairs in order, when it was accumulating interest and penalties for failure to lodge its Business Activity Statements. I find that the lack of up to date Business Activity Statements until September 2014 has contributed to the failure to provide for taxation which led to the relevant event. Seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business [40] The QBCC indicated that although it had not previously been satisfied that Mr Anderson had sought appropriate financial or legal advice before entering into financial or business arrangements or conducting business, the Commission is now satisfied that he had done so. [41] In considering the evidence of Mr Anderson and Mr Radwan, I note that there was frequent contact with Mr Radwan over a variety of financial issues and that Mr Anderson’s son is a qualified lawyer who worked in the business, providing legal advice as required. I find that Mr Anderson did seek appropriate financial or legal advice in the conduct of the business of Classic Stone. Putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts [42] The QBCC submitted that Mr Anderson took every reasonable step to recover the Glenzeil and Buildcorp debts. I agree with that submission. However, having regard to the approximate $500,000.00 written off in 2013 and 2014 the QBCC remains unsatisfied that the company had in place appropriate credit management procedures or that it took reasonable steps to recover those sums. [43] Neither Mr Anderson nor Mr Radwan addressed the write off such large sums. I find that absent any explanation for such significant write offs there is no evidence on which I can find that Classic Stone had in place appropriate credit management for amounts owing and that it took reasonable steps for recovery of outstanding amounts. Given the losses sustained by Classic Stone I find that the failure to seek recovery of the outstanding sums contributed to the circumstances leading to the relevant event. Making appropriate provision for Commonwealth and State taxation debts QBCC position [44] In its closing submissions the QBCC said that failure to make provision for Commonwealth taxation debts was the main issue. As the evidence has emerged, I agree with that submission. -- 12 of 18 -- 13 [45] The QBCC submitted that a tax debt in the sum of approximately $18,000.00 pre- dated Classic Stone’s entry into the Glenzeil contract. Failure to pay that sum was unacceptable and the failure resulted in the debt increasing to approximately $274,000 as a result of interest and penalties for late lodgement by September 2014. I note the failure to pay approximately $122,000 in pay as you go withheld tax for Classic Stone’s employees significantly increased the debt at that time. The QBCC submitted that a debt of $274,000.00 weakened the position of the company. The company had no reserves to meet the debt. [46] The QBCC submitted that Mr Anderson was relying on a future payment to pay a past tax debt. [47] The QBCC made the point that only part of the total ATO debt was incurred before the Glenzeil liquidation. A significant amount accrued after the liquidation. [48] The QBCC submitted that Mr Anderson must have been concerned as to Classic Stone’s ability to meet a financial arrangement with the ATO for repayment of the debt, without profit on a future project. I was referred to the decisions of Alafaci v Queensland Building and Construction Commission20 and Queensland Building and Construction Commission v Jensen21 on these issues. [49] Relevantly in Jensen’s case the Appeal Tribunal said: [33]…As I have said previously in Queensland Building and Construction Commission v Vadasz whether the entering into a repayment program satisfies the test of making appropriate provision must be considered in the circumstances of the particular case. [37] In considering whether the company made provision for taxation debts it is necessary to have regard to all the circumstances and in particular the Company’s financial position at the time of the entering into the arrangement and relevant event. The findings of fact made by the learned Member that at the time the agreement was entered into, there was nothing to suggest that the first instalment could not be made is contrary to the evidence before the Tribunal. [38] This conclusion is reinforced by the Commission’s contention that the business was always undercapitalised and relied on future income to pay past debts, including taxation debts. Again, although there is nothing novel in the proposition that most building companies necessarily operate on credit, have to do work and supply materials first then submit a draw for payment, it is also expected that the business would have at least some cash reserves or assets to cover these debts to comply with the FRL requirements. That is to ensure that it has sufficient assets to cover the annual allowable turnover under the QBCC Act. [50] In Alafaci’s case the Appeal Tribunal referred to submissions that all reasonable steps were taken to satisfy the requirement for provision for taxation through the making of an entry in the balance sheet for taxation liabilities and the making of a 20 [2015] QCATA 23 21 [2014] QCATA 28 -- 13 of 18 -- 14 payment arrangement with the ATO. The Appeal Tribunal relied upon statements of Senior Member Oliver in Queensland Building and Construction Commission v Vadasz22 at [44] that: … Although a reference to ‘provision’ does not necessarily mean actual payment of any tax liability, it should nevertheless be given its ordinary meaning. This would mean that there should be an existing fund or mechanism in place to ensure that payment of any tax liability could be made when required. [51] The appeal tribunal in Alfaci’s case said that provision within the meaning of the section would also include entering into an arrangement with the relevant taxation authority to pay outstanding tax by instalments in circumstances where the cash flow of a business has been interrupted as a result of events outside the control of the business. Where such an arrangement has been entered into, it would also be reasonable to have regard to the payment plan to ensure that it is reasonable and achievable having regard to the past performance of the business and reasonable future cashflow projections in the particular circumstances of the business. There would be an evidentiary onus on the applicant, in these circumstances, to satisfy the decision maker of these matters.23 [52] Mr Baker’s statement – exhibit 5, records that whilst Mr Anderson entered into a payment arrangement with the ATO (which I note was in November 2014 as arranged by Mr Radwan but unmet and March 2015 as arranged by Mr Anderson), there is insufficient evidence to support that at that time the Company actually had the financial capacity to meet the terms of the agreement, which included payment against the existing debt and all current and accrued liabilities. [53] The QBCC concluded that failure to make provision for taxation was the main cause of the liquidation of Classic Stone. I was referred to the admissions made by Mr Radwan in cross-examination that late lodgement of Income Tax Returns was not good business management and that failing to pay tax is not good business management. Mr Anderson’s position [54] In cross-examination, Mr Anderson said that he did not know what the March 2103 debt of approximately $18,000.00 related to. Mr Radwan suggested in evidence that it related to general interest charges and penalties and that these were easily remitted once all returns were lodged. [55] Mr Anderson and Mr Radwan’s evidence is that book-keeping errors in the 2013 period resulted in delay in lodging the company’s Business Activity Statements and that it took 9 months to undertake the data entry necessary to complete the outstanding Statements. [56] Mr Anderson agreed in cross-examination that the increase in the tax debt to approximately $270,000.00 in September 2014 was largely penalties for late lodgement. Mr Anderson said under cross-examination that if that sum had been 22 [2014] QCATA 001 23 [2015] QCATA 23 at [58] and [59] -- 14 of 18 -- 15 paid to the ATO, the company would have become insolvent, accordingly it was negotiating with the ATO. He said that he was discussing with the ATO that the funds were not necessarily owed at that time. Upon being pressed, Mr Anderson said that the sum could have been paid but someone else would miss out. [57] When questioned as to whether money due to the ATO was being used to fund the Glenzeil Project, Mr Anderson said that because Business Activity Statements are lodged quarterly, no funds were owed until the second part of 2014. He said that he knew in June or July 2014 that the Company owed the ATO approximately $200,000.00 but that it was not due until September 2014 because the Company had two quarters to pay its tax. [58] Mr Anderson said that the tax started to increase markedly from January 2014, acknowledging that pay as you go withholding tax and GST arose from that time. [59] Under cross-examination, Mr Anderson agreed that the company could not meet repayment arrangements with the ATO to pay past and present tax. [60] Mr Anderson gave evidence that half of the debt to the ATO occurred in the last three months of trading and that if the Glenzeil money had been available, when considered with $4,000,000.00 of projects in advance, the tax could have been met. [61] Mr Anderson said that the issue which tipped the company into liquidation was the Director’s Penalty Notices (DPNs). [62] Mr Radwan’s evidence is that Classic Stone was not paying past ATO liabilities from present or future income when it was trading, and that Classic Stone made adequate provision and set enough aside to make such payments. I was not pointed to evidence of amounts set aside. [63] Mr Radwan’s evidence is that if Classic Stone had been paid by Glenzeil for its last progress claim it would have been in a position to pay all debts owed to the ATO as at 23 September 2014. He said that non-payment of approximately $542,000.00 was a blow to cashflow that many businesses could not have withstood. [64] Mr Radwan attaches to his statutory declaration a copy of email exchanges between himself and the ATO as part of his attempts to negotiate a payment arrangement. [65] A payment arrangement was agreed in November 2014 whereby Classic Stone would pay $5,000.00 per month starting from 5 December 2012; $15,000.00 to be paid at the end of January 2015 and $25,000.00 every 6 months in June 2015, December 2015, June 2016 and December 2016 with the balance remaining to be paid at the end of the 24 month period.24 [66] Mr Anderson reported to Mr Radwan that $5,000.00 payments for November and December were made, that the September BAS of $19,000.00 was paid and $3,000.00 was paid towards outstanding moneys. 24 Part of attachment 2 to the Statutory Declaration of Mohamed Radwan – email Radwan to Hallewell, dated 26 November 2014 at 11.55am and reply from Hallewell dated 27 November 2014 at 12.15pm – Exhibit 1. -- 15 of 18 -- 16 [67] However, it appears no further payments were made, and Mr Anderson commenced negotiations with the ATO in February 2015, resulting in an agreement in March 2015, which required payment of $364,425.15 on 3 April 201525. Subsequent communications reveal various arrangements in relation to payment of the debt including a proposed indemnity from the insurer of Slipstop, none of which came to pass. [68] In relation to the repayment agreement with the ATO, it was put to Mr Anderson in cross-examination that an agreed sum of $100,000.00 was never paid to the ATO. [69] Mr Anderson’s evidence was that, through clerical error, a progress claim on Hutchinson Builders was sent late. As a consequence, payment would not be made for a further 30 days. The ATO was informed and a smaller amount was paid. [70] I note the ATO continued to press for the debt to clear and for future tax obligations to be met on time. Mr Anderson was urged to provide for monthly withholding tax to save large quarterly burdens, which he agreed to do. Some payments were made but no meaningful impact on the debt was made. On 21 May 2015 the ATO advised that as at 26 May 2015 the debt would be $559,627.34.26 Findings as to whether Mr Anderson made appropriate provision for Commonwealth taxation [71] On the evidence I do not consider it reasonable for Mr Anderson to fail to lodge Business Activity Statements for a period of 15 months. Mr Anderson is an experienced businessman. Over that period Mr Anderson must have known that interest and penalties were accruing. Importantly, as he employed staff over that period he knew there was a liability for pay as you go withholding tax, but he took no steps to provide for that liability. [72] I do not consider it reasonable to rely on a 9-month project by a book keeper to undertake fresh data entry before Business Activity Statements could be lodged. [73] Earlier attention to Classic Stone’s tax obligations would have reduced the interest and penalty charges and reduced the ultimate tax liability. [74] I do not accept that it was reasonable for Mr Anderson to adopt the view that Classic Stone had until September 2014 to pay outstanding tax. The ATO integrated account clearly shows the effective or due dates for payment of tax. Interest accrues from that date on unpaid amounts. Significant amounts of tax were due before September 2014. [75] I note Mr Anderson’s evidence that the original outstanding sum of $18,000.00 could have been paid but that he chose not to. Payment of that sum would have prevented the amount owing to the ATO from growing as a result of interest. [76] I find that Mr Anderson has ignored his tax obligations for a period of 15 months and relied upon a future payment from Glenzeil to meet any sum owing to the ATO. 25 Letter ATO to Classic Stone QLD Pty Ltd dated 10 March 2015 – Tab M, p. 1 of Exhibit 1 26 Exchange of emails between Classic Stone and ATO – Tab M Exhibit 1 -- 16 of 18 -- 17 [77] I accept that the liquidation of Glenzeil and the losses incurred on the Buildcorp project were unforeseeable, however by the time those events occurred Mr Anderson had exposed the company to a sizeable tax liability by failing to crystallize the amounts owing and to provide for payment at an earlier time. The problem with relying on a future payment to meet past tax debts is that the future payment may not be made as was the case here. It is not to the point to suggest as Mr Anderson and Mr Radwan have that if the Glenzeil invoices had been met the tax would have been paid. The point is that the tax should have been provided for as it fell due. [78] It is also relevant that significant indebtedness to the ATO arose after the Glenzeil liquidation. Those debts were not paid as they fell due.27 [79] I accept that entering into a payment program with the ATO can amount to providing for taxation, however, applying the reasoning set out in Alafaci’s case and Jensen’s case, the financial state of the company was such that at the time the payment programs were agreed there was no real prospect of them being met. That was what in fact transpired. Mr Anderson admitted that the company was unable to meet the agreed plan. [80] The company’s tax liability was allowed to spiral out of control. There was no need for it to reach the level it did if precautionary steps had been taken by Mr Anderson. [81] Reasonable steps could have included: (a) speeding up the process of data entry to enable Business Activity Statements to be submitted; (b) earlier submission of Business Activity Statements; (c) liaising with the ATO as to the character of the $18,000 tax debt as at March 2013 and making arrangements for payment; (d) calculating pay as you go withholding tax and attending to payment when it fell due. [82] These are prudent steps which were reasonably available to Mr Anderson. They are steps which go no further than a basic obligation at law to complete and submit Business Activity Statements and to provide for payment of taxation. [83] I find that Mr Anderson did not make appropriate provision for Commonwealth taxation debts. Conclusion [84] Considering my findings in relation to the matters set out in s56AD(8A) of the QBCC Act and accepting the QBCC’s evidence in relation to a lack of appropriate levels of capital in the company, I find that Mr Anderson did not take all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event. 27 ATO Integrated Account attached to the Statutory Declaration of Mr Radwan made 10 July 2015. -- 17 of 18 -- 18 [85] I therefore do not need to exercise my discretion to classify Mr Anderson as a permitted individual. [86] Mr Anderson gave evidence that he has an unblemished record with the QBCC over a long career in the building and construction industry. Over 30 years he has worked on many well- known projects and has undertaken high quality work in luxury developments. Mr Anderson’s evidence is that the knowledge he has obtained during 34 years in the building trade takes a lifetime of dedication, sweat, study, learning and time. [87] I accept that Mr Anderson is a highly qualified tradesperson. I found him to be straightforward and honest and has done his best to provide a comprehensive application and supporting documents. [88] In his closing submissions, Mr Anderson said that he has remained proactive and that all staff have been paid, including their entitlements. After the liquidation, he saw that all creditors were paid by himself or that there was an agreed settlement entered. Nothing remains owing to the ATO. That is a remarkable effort and should be acknowledged. [89] However, these matters do not alter my finding that Mr Anderson did not take all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event. [90] In the circumstances, I confirm the decision of the QBCC. -- 18 of 18 --