Burnett v Queensland Building and Construction Commission [2016] QCAT 402

CITATION: Burnett v Queensland Building and Construction Commission [2016] QCAT 402 PARTIES: Richard Earle Burnett (Applicant) v Queensland Building and Construction Commission (Respondent) APPLICATION NUMBER: OCR91-15 MATTER TYPE: Occupational regulation matters HEARING DATE: 2 June 2016 HEARD AT: Brisbane DECISION OF: Member Hanly DELIVERED ON: 21 October 2016 DELIVERED AT: Brisbane ORDERS MADE: 1. The decision of the Queensland Building and Construction Commission, made on 8 May 2015, to refuse to categorise Richard Earle Burnett as a permitted individual, is confirmed. CATCHWORDS: ADMINISTRATIVE REVIEW – OCCUPATIONAL REGULATION – PERMITTED INDIVIDUAL – where QBCC refused to categorise the applicant as a permitted individual – where relevant event was liquidation of company – where circumstances were failure to put in place appropriate credit management for amounts owing and take reasonable steps for recovery of those amounts, failure to properly act on financial and legal advice, failure to make proper provision for Commonwealth taxation – whether making proper provision includes making no provision at all in certain circumstances Queensland Building and Construction Commission Act 1991 (Qld) ss 20, 56AC, 56AD(8), 56AD(8A), 86, -- 1 of 11 -- 2 Queensland Civil and Administrative Tribunal Act 2009 (Qld) ss 9(1), 19, 20, 24 Younan v Queensland Building Services Authority [2010] QDC 158 Younan v Queensland Building Services Authority [2011] QCA 1 Queensland Building and Construction Commission v Meredith [2014] QCA 62 REPRESENTATIVES: APPLICANT: Richard Earle Burnett represented by Mr R J Oliver of Counsel, instructed by Morgan Conley RESPONDENT: Queensland Building and Construction Commission represented by Ms M Gynie, in- house solicitor. REASONS FOR DECISION [1] Mr Burnett was the sole director of R. Burnett & Co Pty Ltd, which went into liquidation on 20 March 2015.1 Mr Burnett was subsequently categorised as an excluded individual.2 [2] At the time, the company held a licence in the class of Drainage3 and Mr Burnett held a Nominee Supervisor licence in the class of Drainage.4 [3] Mr Burnett applied to QBCC to be categorised as a permitted individual. On 8 May 2015, QBCC refused that application on the basis that it was not satisfied that Mr Burnett had taken all reasonable steps to avoid the circumstances that resulted in the relevant event. [4] Mr Burnett sought review of that decision by the Tribunal.5 The Tribunal is required to consider the matter afresh, and to determine it on its merits. In doing so, the Tribunal is required to make “the correct and preferable decision”.6 [5] The Tribunal may categorise Mr Burnett as a permitted individual only if it is satisfied that he “took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the 1 2 Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) s 56AC. 3 Company’s licence. 4 Applicant’s licence. 5 QBCC Act s 86(1)(j); Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act) ss 9(1), 19. 6 QCAT Act s 20. -- 2 of 11 -- 3 relevant event.”7 The “relevant event” referred to in section 56AD(8) refers to the relevant event set out in section 56AC. [6] It is necessary, therefore, for the Tribunal to decide the following issues: a) What is the “relevant event”? b) What were the circumstances that resulted in the happening of the relevant event? c) Did Mr Burnett take all reasonable steps to avoid the coming into existence of those circumstances? d) If the threshold issue is satisfied, should the Tribunal exercise its discretion to classify Mr Burnett as a permitted individual? [7] In determining what those reasonable steps are, the Tribunal must make that assessment “by reference to what was known by (Mr Burnett) at the time, without the benefit of hindsight.”8 It is also not a question of whether Mr Burnett did everything possible to prevent the circumstances from arising, or whether they would have arisen if he had acted differently.9 Company history [8] It is useful to understand the company’s development after its incorporation on 26 September 1980.10 [9] The company commenced business in about 1983. It undertook civil construction and drainage works and associated concrete structures for developers, builders and plumbers. These works involved stormwater drainage, gross pollutant traps; civil reticulation; water reticulation; earthworks, and drainage on small and large subdivisions. [10] The uncontested evidence of Mr Burnett is that the company operated profitably each year between 1983 and 2008. The company employed a number of staff, including administrative staff, one of whom was Ms Colleen Vining, the company’s bookkeeper. [11] The company began to experience financial difficulties with the onset of the global financial crisis in 2008. Work in progress allowed the company to make a profit in 2008, but in 2009 there was a marked reduction in work. The company continued to trade and generated significant turnover in that financial year. [12] However, the company made losses in the 2009, 2010 and 2011 financial years. 7 QBCC Act s 56AD(8). 8 Younan v QBSA [2010] QDC 158 at para [26]. 9 Ibid. 10 Exhibit 5 p11. -- 3 of 11 -- 4 [13] More misfortune was to befall the company in September 2010, when it was confronted with a prolonged period of wet weather extending through to 2011, when the devastating floods of February 2011 struck. [14] The floods caused various problems for the company. Not only was there water damage to heavy machinery and smaller equipment, which necessitated repair or replacement, but also the company had to vacate its premises, had to continue to pay staff, had projects delayed for significant periods, and in some cases had to abandon work altogether.11 [15] Consequently, the company struggled through the remainder of 2011 and 2012. In 2013, after further wet weather, more flooding and mounting liabilities, and acting on advice, Mr Burnett closed the business down. What is the relevant event? [16] The relevant event is the appointment of liquidators to the company. What were the circumstances that resulted in the happening of the relevant event? [17] Mr Burnett’s evidence is that the company traded profitably from the time it commenced business until 2008. That evidence was unchallenged. [18] Mr Burnett gave detailed evidence about the impact of the Global Financial Crisis.12 This was the first factor that he implicated in the changing fortunes of his company. [19] In summary, Mr Burnett stated that bank finance was tighter, which caused projects to be delayed, or cancelled altogether, and there was a perceptible downturn in revenue. Even so, in 2008, the company made a small profit, but lower than previous years. [20] By 2009, work was even tighter, and the one large-scale project that the company was able to secure13 involved the installation of cement-lined steel pipes, which were very expensive to purchase. Hence, with the increase in operating costs, the profit margin was very slim, and overall the company made a small loss. [21] By early 2010, Mr Burnett had to inject funds into the company, extending a line of credit secured over his family home to do so. [22] At that stage, the company was still solvent. [23] By late 2010, Brisbane was experiencing exceptionally wet weather, which severely restricted the company’s ability to carry out its work, and hence significantly affected its cash flow. 11 Exhibit 3 paras 39-76. 12 Exhibit 3 paras 15-33. 13 “Bridle Trail” at Carrara undertaken by the Abi Group. -- 4 of 11 -- 5 [24] In January 2011, catastrophic floods hit Brisbane, and further affected the business. The business office was also completely flooded, and Mr Burnett had to relocate it. [25] Mr Burnett gave detailed evidence about these matters.14 [26] In summary, with the combination of water damage to machinery, resultant costly repairs and associated delays to projects, plus the retention of staff even when work was not available, and the office relocation, the company made a nett loss in 2011. [27] At 30 June 2011, the company owed approximately $150,000.00 in various tax obligations to the Australian Tax Office.15 [28] This evidence was also uncontested. [29] The Tribunal is satisfied that the Global Financial Crisis and the devastating rains and flood of 2010/2011 were a direct cause of the significant downturn in the work the company could perform, which in turn caused a significant drop in the profitability of the company and the reduction in cash flow. This then resulted in the company being unable to meet its financial commitments as and when they fell due at the time that it ceased trading in early 2013. Did Mr Burnett take all reasonable steps to avoid those circumstances coming into existence? Proper books and records. [30] It is not contested that Mr Burnett kept proper books and records.16 Legal and financial advice. [31] Mr Burnett stated that he obtained legal and financial advice at the time that the company began experiencing difficulties. He sought advice from a number of relevant professionals. [32] In June 2010, Mr Burnett consulted Blair Harding of Action Coach.17 It appears that Mr Harding had regular meetings, both face to face and by videoconference, with Mr Burnett, and the company bookkeeper Colleen Vining. Because of these meetings, and the advice given to Mr Burnett he implemented a variety of strategies to improve marketing, tendering and financial management of the company. [33] In November 2011, Mr Burnett ended the business coaching arrangement with Mr Harding, as it was no longer affordable.18 14 Exhibit 3 paras 34-76. 15 Exhibit 3 para 76. 16 Exhibit 6 para 12. 17 Exhibit 1 para 9. 18 Exhibit 1 para 20. -- 5 of 11 -- 6 [34] In December 2011, Mr Burnett sought advice from De Jonge Read & Associates. Advice dated 5 December 201119 was given in relation to cessation of trading of the company, liquidation of the company in due course, and the establishment of a new company, as well as associated matters relating to the purchase of the plant and equipment by the new entity. [35] The advice included the observation that Mr Burnett would need to finalise the payment arrangement with the ATO, which would need to be maintained during the period of the wind down of the company.20 [36] Mr Burnett did not follow the advice of De Jonge Read. He said that the major reason was that it was going to cost $60,000.00, which he could not afford.21 [37] Mr Burnett said that another consideration was that if he were to have liquidated the company at that time, the company would have lost its building licence. He explained that although the company was not using the licence, it was “a handy thing to have”. This was because although a large proportion of the company’s work was civil work on roadways, if a project connected into a boundary, which technically put the company onto private property, then holding a licence permitted that work to be done as well.22 [38] The Tribunal notes, however, that the company’s building licence was suspended on 13 February 2012, surrendered by Mr Burnett on 19 June 2012, and cancelled on that basis on 25 June 2012. [39] In January 2013, Mr Burnett sought advice from Gateway Financial Partners. It appears that Gateway was to provide assistance prior to and throughout the appointment of administrators to the company. It was Gateway’s advice that the company be placed in external administration.23 [40] Gateway recommended that Mr Burnett obtain a second opinion, and referred Mr Burnett to Xander Orth, an accountant within its organisation specialising in insolvency and liquidation. Mr Orth in turn referred Mr Burnett to Morgan Conley, Solicitors. [41] The advice from Morgan Conley included advice that Mr Burnett was not personally obligated to pay the company’s debt to the ATO. [42] Mr Burnett explained that leading up to the time that he sought advice from Gateway, there was no money to pay the ATO. He was paying other creditors (his current suppliers) so that he could keep doing work. His 19 Exhibit 1 Appendix AA. 20 Exhibit 1 Appendix AA page 2 “Our Recommendations”. 21 Transcript 1-20 lines 44-47. 22 Transcript 1-21 lines 29-40. 23 Exhibit 3 para 93. -- 6 of 11 -- 7 rationale was that by being able to generate income, he could keep the business going, and he might ultimately be able to pay the ATO.24 [43] By taking this action, Mr Burnett was preferring the company’s trade creditors over the ATO. [44] In any event, the company’s parlous financial position did not improve. [45] Upon receipt of the advice from Gateway and Morgan Conley, he acted on that advice. [46] This resulted in his completing work in hand, but not taking on new work. Once the work in hand was completed, the company ceased trading, at which time it owed approximately $180,000.00 to trade creditors and $400,000.00 to Suncorp.25 [47] Once the company ceased trading, Mr Burnett acted on further advice as to the disposal of plant and equipment, and payment of company debts, other than to the ATO.26 [48] Mr Burnett’s legal advisers advised him that he could voluntarily appoint an administrator to the company at a cost of $15,000.00 or he could wait for the ATO to wind the company up, which would cost nothing. He acted on that advice as well. [49] Whilst in many instances, Mr Burnett did obtain appropriate professional advice at various times, he did not act on that advice in several important instances, and specifically as to making payment arrangements with the ATO, as recommended by De Jonge Read. Those payment arrangements were part of a total package of advice, around liquidating the company, but nonetheless highlighted the importance of payments to the ATO. Did Mr Burnett have appropriate credit management? [50] In July 2012 a debtor of the company, Civil and Allied Technical Constructions Pty Ltd, failed to pay an outstanding invoice of $106.626.30. Following several demands, the company received a payment of $26,235.00 in November 2012. The company took legal action, which resulted in a judgment for $57,622.64 in January 2013. After payment of legal costs, the company suffered a loss of $38,026.30.27 [51] Mr Burnett stated that the company also had substantial debtors (approximately $230,000.00) which, if collected promptly, would have been sufficient to cover the amounts owing to the company’s creditors.28 24 Transcript 1-33 lines 20-45 and 1-34 lines 1-19. 25 Exhibit 3 para 96. 26 Exhibit 3 paras 97-100. 27 Exhibit 3 paras 87-89. 28 Exhibit 3 para 86. -- 7 of 11 -- 8 [52] Mr Burnett contended that the company did have appropriate credit management procedures in place, with an Accounting Policies and Procedures Manual, to which the company adhered when dealing with the recovery of debts. [53] Mr Burnett set out the company’s practice before entering into any business arrangement with another company.29 [54] Mr Burnett did not describe the steps, if any, that the company took in relation to recovery of the substantial sum of approximately $230,000.00 (paragraph 51 above). It is an integral component of credit management that steps are taken in a timely manner to recover debts, not least because this will ensure steady cash flow for the company. [55] Because Mr Burnett identified the $230,000.00 as being sufficient to cover the amounts owning to the company’s creditors, numerous questions remain unanswered in relation to it. For example, was demand for payment made in a timely fashion, if at all? Was recovery action delayed, or not taken? Was there any advice given to Mr Burnett about prospects of success, if initial demands yielded no result? [56] Because of the worsening financial position of the company, which saw the company cease trading in 2013, Mr Burnett sold the family home in March 2014 and used the sale proceeds to pay out a mortgage and overdraft facility to Suncorp-Metway Limited, plus several other outstanding debts. A small amount was paid to his wife, as she was a joint owner of the family home.30 The ATO was not included in the payments. [57] QBCC submits that the company was entering into payment arrangements with creditors (apart from the ATO) from as early as 2011. On that basis, it submits that the company had no contingency plan in place with respect to the floods, and that the company had insufficient working capital to sustain it through this period or to sustain the company’s business activities. [58] The Tribunal is satisfied that the extent of the 2011 floods was a catastrophic event, which was outside the usual contemplation or expectation of such events. Having said that, however, some disruption after heavy rains should not be regarded generally as an unusual event, so that one would expect that a company should include in its projections some down time during the rainy season in an industry of this type. That would, in turn, necessitate appropriate levels of working capital, which does not appear to have been available for this company. [59] The Tribunal does not accept that the company should have had a contingency plan in place with respect to the 2011 floods per se. The Tribunal is satisfied, however, that the provision of sufficient working capital should include an accommodation for rain related disruptions to 29 Exhibit 3 paras 122-128. 30 Exhibit 2 para 11. -- 8 of 11 -- 9 normal business activities. To provide sufficient working capital, the company needed to collect outstanding debts in a timely manner. [60] The Tribunal is not satisfied that Mr Burnett had appropriate credit management procedures for the company, because although the company took steps to establish the credit worthiness of companies or businesses with which it entered business arrangements, there was insufficient evidence to establish that debts were pursued in a timely or effective way. Had there been recovery of the outstanding $230,000.00, the company, on Mr Burnett’s evidence, would have paid the company’s creditors. Was appropriate provision made for taxation? [61] Mr Burnett acknowledged that the company started to experience financial difficulties including the payment of tax, from late 2007 through to about 2010. This was after the effects of the GFC began affecting the business.31 [62] Mr Burnett stated that the debt to the ATO accrued in the normal course of operating a business between 2011 and 2013.32 [63] The company was indebted to the ATO for superannuation from at least 1 July 2011.33 Mr Burnett also failed to comply with the company’s BAS requirements. [64] Mr Burnett said that on 5 September 201134 the company wrote to the ATO with a view to entering into a payment plan whereby Mr Burnett offered payment of $2000.00 per month. However, he received no reply from the ATO, and it would appear, no payments were ever made under the offer. [65] In evidence at the hearing, Mr Burnett confirmed that there was no follow- up with the ATO, and because he did not hear anything further from the ATO, he assumed that the ATO did not like the offer. When asked whether there was any reason he did not follow up with the ATO, he responded: “No, I daresay we were waiting for the Tax Department to tell us what to do”.35 [66] There is evidence of a payment of $4,441.00 to the ATO on 21 March 2011. Other than that, Mr Burnett has provided no other evidence of payments to the ATO. [67] On 28 October 2014, the outstanding debt to the ATO was 336,959.61.36 31 Exhibit 3 para 135. 32 Exhibit 3 para 137. 33 Exhibit 1 Appendix B page 27. 34 Exhibit 1 Appendix EA page 58. 35 Transcript 1-12 lines 29-31. 36 Exhibit 1 Appendix B page 27. -- 9 of 11 -- 10 [68] Mr Burnett’s Counsel submitted that the question for the Tribunal’s consideration is: What constitutes making appropriate provision for Commonwealth and State taxes having regard to Judge McGill’s observations about the reasonableness of steps taken by an individual? These steps must be considered in the “circumstances in which he found himself, with such information as he then had”. [69] It was further submitted that the circumstances in which Mr Burnett found himself were extraordinary, and could not reasonably have been predicted. Furthermore, although the company had debt, it remained solvent, and with the accommodation of creditors, continued to pay those creditors. There was, it was submitted, nothing unusual about such a scenario. [70] Counsel further submitted that Mr Burnett did attempt to make some provision for tax by writing to the ATO on 5 September 2011, and if the ATO did not want to engage with Mr Burnett to achieve a sensible and achievable payment programme then that could hardly be said to be Mr Burnett’s fault. [71] It was submitted that in addition to the positive steps that Mr Burnett took (by writing to the ATO), the meaning of ‘appropriate provision’ in particular circumstances might well be, making no provision at all. That was said to be the case here. [72] Counsel referred to Queensland Building and Construction Commission v Meredith37, in which, in upholding the Tribunal’s primary decision to categorise Mr Meredith as a permitted individual, the Court of Appeal held that Mr Meredith “was entitled to rely upon the judgment and advice of Mr Miller (his co-director) without verification that Mr Miller’s advice was correct” in the running of the building company of which Mr Meredith was a director. Counsel submitted that the effect of this decision was that in particular circumstances, taking none of the steps referred to in s56AD(8A) amounted to taking reasonable steps for the purposes of s56AD(8). [73] Counsel conceded that Mr Burnett’s circumstances were not the same or factually similar to Meredith. However, he submitted that the case highlighted the need to, firstly, apply the legislation to the particular circumstances, and secondly, when considering what might amount to “appropriate provision” in the particular circumstances, that this could include making no provision at all for Commonwealth or State tax. [74] On Mr Burnett’s own evidence, the company began to experience financial difficulties from late 2007. This included the payment of tax. However, Mr Burnett did not approach the ATO until September 2011 to attempt to arrange a payment plan. Even then, when he did not receive any response from the ATO, Mr Burnett took no further action, instead waiting for the ATO to “tell us what to do”. He did not start to make the proposed 37 [2014] QCA 62. -- 10 of 11 -- 11 instalments of $2000.00 per month, as a sign of the company’s bona fides. In addition, Mr Burnett was paying other creditors, thereby preferring them to the ATO. [75] The Tribunal is not satisfied that Mr Burnett’s actions in ignoring the growing ATO debt were reasonable. Even in the circumstances in which he found himself after the 2011 floods, which the Tribunal accepts were very difficult, and unforeseeable, he had to know that by ignoring the ATO debt the company would ultimately face a statutory demand. [76] Mr Burnett acknowledged at the hearing that at the same time as he was entering into payment arrangements with his trade creditors it probably would have been reasonable to enter into a payment arrangement with the ATO.38 [77] The company ceased trading in early 2013. From that time, until the company was wound up on the ATO’s petition on 20 March 2015, Mr Burnett made no payments to the ATO. The family home was sold to satisfy creditors of the company, but none of the proceeds of sale was directed to the ATO. [78] The Tribunal rejects the submission that making appropriate provision for taxation includes making no provision at all, particularly in circumstances where other creditors were preferred to the ATO. [79] Mr Burnett consciously did not act on advice given to him as to finalising payment arrangements with the ATO, and consciously did not make appropriate provision for payment of Commonwealth taxation debts. Conclusion [80] The Tribunal is therefore not satisfied that Mr Burnett did:  Properly act upon financial and legal advice which he received; or  Put in place appropriate credit management for amounts owing and take reasonable steps for recovery of the amounts as referred to in s56AD(8A)(e); or  Make appropriate provision for Commonwealth taxation debts as referred to in s56AD(8A)(f). [81] The Tribunal therefore is not satisfied that Mr Burnett has demonstrated that he has taken all reasonable steps to avoid the circumstances coming in to existence, which resulted in the relevant event, sufficient to allow him to be categorised as a permitted individual. [82] Accordingly, the Tribunal confirms the decision under review. 38 Transcript 1-33 lines 31-34. -- 11 of 11 --