Alafaci v Queensland Building Services Authority [2013] QCAT 499

CITATION: Alafaci v Queensland Building Services Authority [2013] QCAT 499 PARTIES: Anthony Alafaci (Applicant) v Queensland Building Services Authority (Respondent) APPLICATION NUMBER: OCR191-12 MATTER TYPE: Occupational regulation matters HEARING DATE: 8 and 9 July 2013 HEARD AT: Brisbane DECISION OF: Sandra G Deane, Member DELIVERED ON: 19 September 2013 DELIVERED AT: Brisbane ORDERS MADE: 1. The decision of the Queensland Building Services Authority made on 16 April 2012 to refuse to categorise Mr Anthony Alafaci as a “permitted individual” in relation to the insolvency of Mars West Pty Ltd is confirmed. 2. The decision of the Queensland Building Services Authority made on 16 April 2012 to refuse to categorise Mr Anthony Alafaci as a “permitted individual” in relation to the insolvency of Planet Plumbing (VIC) Pty Ltd is confirmed. 3. The decision of the Queensland Building Services Authority made on 16 April 2012 to refuse to categorise Mr Anthony Alafaci as a “permitted individual” in relation to the insolvency of Planet Plumbing (NSW) Pty Ltd is set aside. 4. Mr Anthony Alafaci be categorised as a “permitted individual” pursuant to section 56 AD of the Queensland Building Services Authority Act 1991 in relation to the insolvency of Planet Plumbing (NSW) Pty Ltd. -- 1 of 11 -- 2 CATCHWORDS: Permitted Individual – review of decision not to allow application to be categorised as permitted individual – when discretion operates Queensland Building Services Authority Act 1991 (Qld) - ss 56AC, 56AD(1), 56AD(8), 56AD(8A) Queensland Civil and Administrative Tribunal Act 2009 (Qld) s 20 Younan v Queensland Building Services Authority [2010] QDC 158 Vadasz v Queensland Building Services Authority [2013] QCAT 84 Baker v Queensland Building Services Authority [2013] QCAT 175 Hyde v Queensland Building Services Authority [2003] QBT 30 Dinsey v Queensland Building Services Authority [2013] QCATA 225 APPEARANCES and REPRESENTATION (if any): APPLICANT: Anthony Alafaci represented by Mr L Stojanovski of Keystone Lawyers RESPONDENT: Queensland Building Services Authority represented by Ms J Stroud, in – house solicitor REASONS FOR DECISION [1] Mr Alafaci is a director of Planet Plumbing (QLD) Pty Ltd, which holds a licence issued by the QBSA. He holds a nominated supervisor‟s licence also issued by the QBSA. Mr Alafaci is a director of Planet Plumbing Group Pty Ltd, the holding company of Planet Plumbing (QLD), which has applied for a licence from the QBSA. [2] Mr Alafaci operates his business through a group of companies in various part of Australia. Three companies of which he was a director had administrators appointed in late 2011.1 As a consequence the QBSA wrote to Mr Alafaci in respect of each insolvency event advising that the QBSA considered him an “excluded individual”2. Mr Alafaci applied to the QBSA to be categorised as a permitted individual3 in respect of each event. Those applications were refused. Mr Alafaci seeks a review of each of those decisions dated 16 April 2012. 1 Mars West Pty Ltd – 21 September 2011; Planet Plumbing (VIC) Pty Ltd – 22 November 2011; Planet Plumbing (NSW) Pty Ltd – 12 December 2011. 2 QBSA Act s 56AC. 3 QBSA Act s 56AD(1). -- 2 of 11 -- 3 [3] As a consequence of there being more than one relevant event Mr Alafaci is considered to be a permanently excluded individual. The effect of which is that Mr Alafaci cannot hold a licence as a contractor or as a nominated supervisor or be a director, secretary or influential person for a licensed company or be in partnership with a licensed contractor. [4] The Tribunal is required to consider Mr Alafaci‟s applications to be categorised as a permitted individual afresh on the material before it to produce the correct and preferable decision.4 If the Tribunal is satisfied on the material before it that the test in section 56AD(8) of the QBSA Act is satisfied it may set aside the QBSA‟s decision and substitute its own. [5] Mr Alafaci contends that this is a proper case to consider the exercise of discretionary factors in favour of deciding that he ought to be categorised as a permitted individual prior to finding that all reasonable steps had been taken or even if I was not satisfied that all reasonable steps had been taken. Mr Alafaci contends that such factors include that he has 20 years experience in successfully running his plumbing business; the consequences of the decisions on the business of Planet Plumbing (QLD), the contracts it is currently undertaking and its employees; and that the events concerned operations outside of Queensland. [6] I invited Mr Alafaci to refer the Tribunal to authority for this proposition. Mr Alafaci requested an opportunity to make written submissions. I directed the parties to file written submissions in relation to whether discretionary factors are to be taken into account if there is a finding that not all reasonable steps have been taken. [7] Written submissions were received however Mr Alafaci did not refer the Tribunal to any authority for this proposition. I accept the QBSA‟s submission that the decision of Younan v Queensland Building Services Authority 5 makes it clear that a finding as to whether all reasonable steps were taken is required before discretion can be exercised. The Tribunal has previously accepted that the exercise of discretion is to be conducted after the Tribunal is satisfied that all reasonable steps were taken.6 [8] The QBSA and the Tribunal in its place in these proceedings may categorise a person as a permitted individual if it is satisfied that the individual took all reasonable steps to avoid the coming into existence of circumstances that resulted in the happening of a relevant event and there are no factors which disentitle the exercise of the discretion. It is a difficult test to satisfy but it does not require a finding that the person took all possible steps.7 [9] Section 56AD(8A) of the QBSA Act sets out mandatory matters to have regard to when determining whether a person took all reasonable steps. 4 Queensland Civil and Administrative Tribunal Act 2009 s 20. 5 [2010] QDC 158. 6 Vadasz v Queensland Building Services Authority [2013] QCAT 84; Baker v Queensland Building Services Authority [2013] QCAT 175 at [21]. 7 Hyde v Queensland Building Services Authority [2003] QBT 30. -- 3 of 11 -- 4 [10] It is not disputed that the relevant events are the appointment of administrators to Mars West, Planet Plumbing (VIC) and Planet Plumbing (NSW). It is necessary to consider the section 56AD(8A) matters in relation to each event. Mars West Event (First Event) [11] Mr Alafaci was the sole director and company secretary of Mars West at the time of the insolvency. Mr Alafaci contended that $1,357,127 was owing to creditors by Mars West, that he first became aware of the cause of the insolvency in July 2011 and that the main cause was the inability of Mars West to recover monies owing under 2 contracts. [12] The Administrator‟s report to creditors8 cites the reasons for the insolvency as rejection of an adjudication claim, insufficient work, lack of working capital and poor strategic management of the business. Keeping proper books of account and financial records9 [13] There was some evidence of this matter. Mr Alafaci gave evidence that: a) he operated his business through a group of companies and that the group employed a Chief Financial Officer and a number of other accounting staff to keep proper books and financial records; b) he reviewed the monthly reports and project performance, saw that the debts were accruing and that he was paying debtors when he could; and c) the monthly reports on margin earned did not indicate that the company was in difficulty because they anticipated full recovery of amounts owing but once they knew full payment would not be made it was clear Mars West was no longer making a profit which explains why the company appeared to be financially viable until shortly before the administrator was appointed. Seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business10 [14] Mr Alafaci gave evidence that he regarded himself “as the best bush lawyer in the plumbing industry”. He obtained advice from DLA Fox11 which simply confirmed his understanding of the RAAF Base Pearce contract with John Hollands. This advice was obtained after Mars West had entered into the contract. [15] Legal advice was sought in 2010 in relation to an adjudication claim in relation to the New Performing Arts Venue contract but it was not sought 8 P 43 QBSA Statement of Reasons. 9 QBSA Act 1991 s 56AD(8A)(a). 10 QBSA Act 1991 s 56AD(8A)(b). 11 Exhibit 4. -- 4 of 11 -- 5 in a timely manner.12 The adjudication was substantially unsuccessful because of the delay in bringing the claim and failure to observe contractual timebars. [16] There is no evidence that Mr Alafaci sought specific financial advice relating to: a) the appropriateness of the assumption in the management accounts of full recovery of variation and other claims not yet formally accepted by John Hollands and the appropriateness of the assumption in the management accounts of full recovery of variation and other claims where there was no agreement as to the amount of such claims although there was a verbal „in principle‟ agreement; and b) the financial reports generated and in particular the monthly margin earned report based upon those assumptions. [17] Presumably Mr Alafaci relied upon the group‟s Chief Financial Officer. A company director is however expected to be financially literate and to challenge management decisions and the assumptions made to satisfy themselves as to the decision‟s appropriateness. There is no evidence on these matters. [18] He sought financial advice in August 2010 in relation to the issues being experienced with the ATO. He also engaged PWC from about July 2010 to July 2011 to attend the group‟s head office 3 times a week to assist with financial planning, a balanced score card system, process and procedures and how to grow the business. Reporting fraud or theft to the police13 [19] There was no evidence to suggest this was a relevant matter to the insolvency. Ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantees14 [20] There was no evidence to suggest this was a relevant matter to the insolvency. Putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts15 [21] The inability to recover amounts owing was a significant cause of the insolvency. [22] Mr Alafaci gave evidence that: 12 The Date for Practical Completion was November 2009 and the Date of Practical Completion was not achieved until January 2011. 13 QBSA Act 1991 s 56AD(8A)(c). 14 QBSA Act 1991 s 56AD(8A)(d). 15 QBSA Act 1991 s 56AD(8A)(e). -- 5 of 11 -- 6 a) Mars West was undertaking 2 major contracts for John Hollands; b) he was aware that disputes often arise between head contractors and subcontractors in relation to variation and delay claims although his experience prior to the New Performing Arts Venue and the RAAF Base Pearce contracts with John Hollands was that he had had very little difficulty in recovering amounts owing to his business; c) he had reviewed the contracts and was aware that the contracts contained time bars and procedures in relation to the giving of notices for variation and delay claims and restrictions on amounts able to be recovered to that recovered under the head contract; d) notices required by the 2 contracts were not made within the times provided and that he had relied upon someone else to manage the contracts; e) he was confident that Mars West was going to be paid by John Hollands based on verbal assurances although from an early time payments were late and only partial payments were received and this placed stress on Mars West‟s working capital; f) he was reluctant to use security for payment legislative remedies except as a last resort due to the adverse affect taking such steps have on the business relationship with the head contractor; g) he sought advice about prospects of successfully claiming in litigation but was unable to fund such litigation because of the strain his business was experiencing; and h) in about March 2011 he realised that it was going to be difficult to recover amounts claimed from John Hollands. [23] There was little evidence before the Tribunal in relation to the amount said to be owing under the RAAF Base Pearce contract and the circumstances surrounding Mars West‟s rights although a number of documents were tendered during the hearing. Mr Alafaci gave some oral evidence about these matters and that due to the financial circumstances Mars West found itself in it accepted a compromise of approximately 50% of what it claimed and amounts received through that compromise were used to pay down creditors including the ATO. [24] Despite being aware that disputes often arise between head contractors and subcontractors in relation to variation and delay claims Mr Alafaci did not ensure that proper systems were in place to ensure that contractual notices were given when required by the contracts to maximise the prospects that claims would be successful. Advice as to recovery of amounts owing was not sought in a timely fashion even though from an early time payments were late and only partial payments were received. [25] He also allowed Mars West to loan money to Planet Plumbing (VIC)16 in May and June 2011 in circumstances where that company was winding down its business and had no real prospect of repaying the amount owed at a time when Mars West was experiencing its own cash flow difficulties 16 Exhibit 15 and 16. -- 6 of 11 -- 7 and he had a few months earlier realised that it was going to be difficult to recover amounts claimed from John Hollands. [26] Mr Alafaci conceded that he regarded the business as one enterprise and moved money between entities by way of inter-company loans as necessary. [27] The Administrator noted17 that inter-company loans of approximately $1 million had been written off. There is little evidence before the Tribunal in relation to this decision(s). I am not satisfied that such a write off was reasonable in the circumstances in which Mars West found itself. Making appropriate provision for Commonwealth and State taxation debts18 [28] The Report to Creditors19 states that $1,011,056 was owed to the ATO. [29] Mr Alafaci‟s evidence was that the debt was owing from around January/February 2010 and increased from March 2010.20 [30] Mr Alafaci gave evidence that: a) the tax liabilities were provisioned in the balance sheet; b) various payment arrangements were entered into with the ATO but before that Mars West was not paying its tax as and when it fell due; c) to an extent Mars West was using monies owing to the ATO as working capital; and d) when he received a Director‟s Penalty Notice21 he sought advice and entered into a payment arrangement. [31] I am not satisfied that Mr Alafaci made appropriate provision for tax. Making proper provision for tax requires more than recognising the liability in the balance sheet, it requires active steps to ensure that the tax is paid when due. [32] I am not satisfied that Mr Alafaci took all reasonable steps. Therefore it is not necessary to consider whether the discretion ought to be exercised to categorise Mr Alafaci as a permitted individual. [33] The QBSA‟s decision is confirmed. Planet Plumbing (VIC) Event (Second Event) [34] Mr Alafaci was the sole director and company secretary of Planet Plumbing (VIC) at the time of the insolvency. Mr Alafaci contended that in the order of $322,000 was owing to creditors by Planet Plumbing (VIC), that he first became aware of the cause of the insolvency in September 17 Second Report to Creditors dated 19 October 2011, QBSA Index of Documents p41-54 at p47. 18 QBSA Act 1991 s 56AD(8A)(f). 19 P44 QBSA Statement of Reasons. 20 Affidavit sworn 6 May 2013. 21 Exhibit 27 – Notice dated 9 August 2010 - indicates tax was owing from 1 December 2009. -- 7 of 11 -- 8 2011 and that the main cause was money owed to Mars West. Mr Alafaci contends that the insolvency of Mars West had a flow on effect to the insolvency of Planet Plumbing (VIC). [35] The Administrator‟s report22 cites the reasons for the insolvency as difficulty in generating new work and decreasing revenues, lack of working capital, poor strategic management of the business and the global financial crisis and general economic conditions. Keeping proper books of account and financial records23 [36] There was some evidence of this matter. As stated earlier in these reasons Mr Alafaci gave evidence that he operated his business through a group of companies and that the group employed a Chief Financial Officer and a number of other accounting staff to keep proper books and financial records. Seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business24 [37] Mr Alafaci‟s documentary evidence does not demonstrate that he sought professional advice through the life of Planet Plumbing (VIC) or when it started experiencing financial difficulties or when the Mars West loan was entered into or called upon. [38] I find that it was not reasonable to allow Planet Plumbing (VIC) to enter into a loan with Mars West in circumstances where Planet Plumbing (VIC) was winding down its business due to difficult economic and market conditions and had no real prospect of repaying the amount. In those circumstances Planet Plumbing (VIC) would be reliant upon Mars West waiving the loan. [39] There is no evidence that Mr Alafaci attempted to negotiate with Mars West‟s administrator when the administrator called up the loan. [40] Mr Alafaci contends that the insolvency of Mars West and of Planet Plumbing (VIC) are both consequences flowing from the one set of circumstances and that he ought not be regarded as an excluded individual in respect of the Second Event.25 This was a contention first raised during the hearing. Mr Alafaci did not seek to review the QBSA‟s decision that he was an excluded individual for the Second Event. This application is to review the QBSA‟s decision not to categorise him as a “permitted individual” in respect of the Second Event. [41] Out of an abundance of caution I directed that the parties file submissions as to the relevance and effect, if any, of Dinsey v Queensland Building 22 P 280 - 282 QBSA Index to Documents. 23 QBSA Act 1991 s 56AD(8A)(a). 24 QBSA Act 1991 s 56AD(8A)(b). 25 QBSA Act 1991 s 56AC(6)(a). -- 8 of 11 -- 9 Services Authority26. In written submissions pursuant to that direction27 Mr Alafaci sought an opportunity to lead further oral evidence to establish the connection and in particular the establishment of the inter company loans and to seek to present a statement from the Administrator. There is no reason provided as to why such evidence could not have been provided prior to or at the hearing. Mr Alafaci was afforded considerable latitude to give oral evidence and tender documents at the hearing, which had not been reduced to statement form and exchanged prior to the hearing. [42] Mr Alafaci did not, in substance, make any submissions as to why the Dinsey decision, which related to a review of a QBSA decision that Mr Dinsey was an excluded individual, is relevant to the Tribunal‟s jurisdiction to determine a review of a decision to refuse to categorise Mr Alafaci as a “permitted individual”. I am not satisfied that it is directly relevant and refuse the request to relist the matter for further oral and written evidence. [43] While the insolvency of Mars West factually contributed to the insolvency of Planet Plumbing (VIC) I am not satisfied that the insolvency of Mars West and of Planet Plumbing (VIC) are both consequences flowing from the one set of circumstances. A circumstance that resulted in the insolvency of Planet Plumbing (VIC) was borrowing money from Mars West, a company experiencing cash flow difficulties, where Planet Plumbing (VIC) had no or little prospect of repaying the amount borrowed. Planet Plumbing (VIC) also had other creditors, including the ATO, which it had no or little prospect of paying. Reporting fraud or theft to the police28 [44] There was no evidence to suggest this was a relevant matter to the insolvency. Ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantees29 [45] There was no evidence to suggest this was a relevant matter to the insolvency. Putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts30 [46] There was no evidence to suggest this was a relevant matter to the insolvency. Making appropriate provision for Commonwealth and State taxation debts31 26 [2013] QCATA 225. 27 Dated 20 August 2013. 28 QBSA Act 1991 s 56AD(8A)(c). 29 QBSA Act 1991 s 56AD(8A)(d). 30 QBSA Act 1991 s 56AD(8A)(e). 31 QBSA Act 1991 s 56AD(8A)(f). -- 9 of 11 -- 10 [47] The Report to Creditors32 states that $98,874 was owed to the ATO. [48] Ms Dennis33 gave evidence that the debt appears to have arisen from around April/May 2011 and increased from around $3,000 in July 2011 to $98,874 in September 2011. [49] Mr Alafaci gave evidence that: a) the tax liabilities were provisioned in the balance sheet; and b) various payment arrangements were entered into with the ATO. [50] I am not satisfied that Mr Alafaci made appropriate provision for tax. Making proper provision for tax requires more than recognising the liability in the balance sheet, it requires active steps to ensure that the tax is paid when due. [51] I am not satisfied that Mr Alafaci took all reasonable steps. Therefore it is not necessary to consider whether the discretion ought to be exercised to categorise Mr Alafaci as a permitted individual. [52] The QBSA‟s decision is confirmed. Planet Plumbing (NSW) Event (Third Event) [53] Mr Alafaci was the sole director and company secretary of Planet Plumbing (NSW) at the time of the insolvency. Mr Alafaci contended that in the order of $1,898,417 was owing to creditors by Planet Plumbing (NSW) and that the main cause was lack of working capital once the majority shareholder of Planet Services Group Pty Ltd, the ultimate holding company of Planet Plumbing (NSW), resolved not to continue to provide funding support. [54] The Report to Creditors34 refers to a Sale Agreement 35 pursuant to which many of the assets of Planet Plumbing (NSW) were sold together with contract liabilities. [55] Mr Alafaci gave evidence that: a) a private equity business invested in the group of companies to assist the group to pay its liabilities and provide additional working capital; b) the private equity investor decided which companies would continue to operate; c) the transaction was completed in July or August 2011; d) he sought legal advice prior to entering into the transaction; 32 P283 QBSA Index to Documents. 33 Affidavit sworn 3 July 2013. 34 P 515 QBSA Index to Documents. 35 Exhibit 20. -- 10 of 11 -- 11 e) Planet Plumbing (NSW) ceased to enter into new contracts as Planet Plumbing Group, its immediate holding company, was to be the contracting party going forward; f) in exchange for its investment the private equity investor became the major shareholder in Planet Services Group with Mr Alafaci retaining 44% of the shares through a company called Alfajoey Pty Limited, which he controlled; g) the funds injected were used to extinguish financing debt (approx $1M), to pay off existing creditors (approx $2.5M) and the balance was absorbed by the group as working capital (approx $2.5M); h) he became one of 4 directors of Planet Services Group; i) on 5 December 2011 the directors of Planet Services Group by majority resolved to walk away from the contractual obligations to fund Planet Plumbing (NSW); and j) he had no alternative other than to place Planet Plumbing (NSW) into administration. [56] I accept that until Planet Services Group resolved to walk away from its contractual obligations on 5 December 2011 Planet Plumbing (NSW) was solvent. [57] I also accept Mr Alafaci‟s evidence that he made a personal contribution under a Deed of Company Arrangement to improve the return received by the creditors. [58] During the course of the hearing the QBSA submitted that based on the evidence adduced at the hearing that Mr Alafaci had taken all reasonable steps in relation to this event and should be categorised as a “permitted individual”. I accept that submission. -- 11 of 11 --