Easton v Queensland Building Services Authority [2012] QCAT 614

CITATION: Easton v Queensland Building Services Authority [2012] QCAT 614 PARTIES: Renai Nicole Easton (Applicant) v Queensland Building Services Authority (Respondent) APPLICATION NUMBER: OCR245-11 MATTER TYPE: Occupational regulation matters HEARING DATE: 16 November 2012 HEARD AT: Brisbane DECISION OF: David Paratz, Member DELIVERED ON: 29 November 2012 DELIVERED AT: Brisbane ORDERS MADE: 1. The Application is dismissed. 2. No order as to costs. CATCHWORDS: Builder – Permitted Individual Building Services Authority Act 1991, s 56AD Younan v Queensland Building Services Authority [2011] QCA 1 APPEARANCES and REPRESENTATION (if any): APPLICANT: In person RESPONDENT: Mr G I Thomson of Counsel REASONS FOR DECISION [1] This is an application by Ms Renai Easton to have a decision of the Queensland Building Services Authority overturned, and for her to be declared a “permitted individual” under s 56AD of the Queensland Building Services Authority Act 1991. -- 1 of 9 -- 2 [2] Ms Easton was a Director of Rimtel Pty Ltd ACN 108 769 651. That company operated as a formwork contractor. On 5 September 2011 liquidators were appointed to the company. [3] On 19 September 2011 the QBSA categorised Ms Easton as an “excluded individual” under s 56AC of the QBSA ACT. That section provides relevantly: “(2) This section also applies to an individual if – (a) ...a company, for the benefit of a creditor – (i) has a ...liquidator ...appointed (ii) …and (c) the individual – (i) was, when the relevant company happened, a director…of...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.” [4] The impact of such a declaration is that by s 56AE, the authority must not grant a licence to a person who is an excluded individual for 5 years. [5] Ms Easton applied on 26 September 2011, under s 56AD to be categorised as a “permitted individual” which would have the effect under s 56(9) that she would be taken not to be an excluded individual. [6] The QBSA on 11 October 2011 refused to categorise Ms Easton as a permitted individual. [7] Ms Easton now seeks to have that decision of the QBSA set aside, and for the Tribunal to categorise her as a permitted individual. [8] The Authority may categorise an individual as a permitted individual for the relevant event under s 56AD(8) only if: “the authority is satisfied, on the basis of the application, that the individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event.” [9] Section 56AD(8A) provides a list of matters which the Authority must have regard to, as to action taken by the individual, in deciding whether an individual took all reasonable steps. [10] Ms Easton gave evidence as to her business and construction industry experience, and as to the history of the company leading up to the liquidation. [11] The Act is clear in requiring a decision maker to have regard as to whether Ms Easton took all reasonable steps to avoid a liquidation occurring. -- 2 of 9 -- 3 [12] The matters which the authority has to have regard to under s 56AD(8A) are as follows: (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 the guarantees; (e) putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts; (f) making appropriate provision for Commonwealth and State taxation debts. [13] There is no suggestion that matters as to (c) reporting fraud or theft, or (d) guarantees, are relevant in this case. [14] In addition, the Authority, under s 56AD(8B) can take into account other matters as to whether the individual took all reasonable steps. [15] I will deal with each of the mandatory considerations in turn. Keeping proper books of account and financial records [16] No issue seems to arise as to records. The “Report to Creditors” of the liquidator, Paul Nogeira of “Worrells” dated 23 November 2011 at page 15 indicates that Detail Aged Trade Debtors Ledger, and Detail Aged Trade Creditors Ledger was maintained, and that the records comply with s 286 of the Corporations Act 2001 (Cth). Seeking appropriate financial or legal advice [17] Ms Easton lodged a bundle of documents as her Statement of Evidence. In her “Conclusion” she states that: “As a director, I have become more aware of my responsibilities and will be able to conduct my duties in the future by being more professionally educated and business smart.” [18] She said in her evidence that the company had an external accountant, Paul Hislop. During the currency of the operations of the company she only saw him on a yearly basis to prepare the tax returns. [19] She said that at the time, she did not know what a financial management service was. She said had worked previously with her father who been a successful businessman and that he did not have a financial management service. She believed that she knew a lot about business herself. [20] She had never asked the Accountant to help her with planning or cash- flow projections, and conceded that it would have been reasonable to -- 3 of 9 -- 4 work closely with Mr Hislop, as to preparation of cash-flow projections and as to business strategies, on a regular basis. [21] Significantly, Ms Easton said that she “had never heard of payroll tax” and that it came as a complete surprise to her when her accountant told her at the end of the year that she owed $80,000 in payroll tax. She said she was unaware of the payroll tax threshold. [22] Also significantly, when asked about an Adjudicator’s decision against the company in October 2008, Ms Easton said that she was not aware previously of the Building and Construction Industry Payments Act 2004, and was not aware of the consequences of the Act. This was a surprising and worrying admission by a person who was actively entering into construction contracts and sub-contracts. [23] The company made a profit of $53,337.34 in 2008 but losses of $159,102.10 in 2009 and $171,597.31 in 2010. [24] As far back as April 2008, when the company had difficulty making taxation payments, Ms Easton realised that the company faced serious financial problems. She conceded that it would have been prudent to discuss matters at that time with an accountant. Her explanation for not seeking such advice was that she was then busy on a new contract. [25] On 12 April 2010, Ms Easton had discussions with Mr Peter Solly about implementing a three step business planning process, but this does not appear to have progressed very far. [26] It is evident that Ms Easton did not seek out prudent or sufficient financial and legal advice in entering into and running the business. Credit Management and Recovery [27] The predominant factor leading to the collapse of the company was, according to Ms Easton, the consequent effects of the “Strongarm” event. This was an event that occurred in the undertaking by Rimtel Pty Ltd of work on a water treatment plant at Pimpama in March 2007. [28] Strongforce Qld Pty Ltd were specialist sub-contractors engaged by Rimtel Pty Ltd. They were assigned post-tensioning work on a slab that formed the base of a very large tank. Rimtel Pty Ltd were constructing the slab as part of their works. [29] In the course of the pre-tensioning, 11 of the cables experienced failure of the barrels/wedge assemblies, and the cables were pulled back into the ducts. [30] The engineer for the project determined that it would be satisfactory for the cables to be re-tensioned. Strongforce undertook that remedial work and reported that it had been completed satisfactorily. -- 4 of 9 -- 5 [31] Some short time later the engineer inspected the cables and noticed movement when one was manipulated, and on further inspection was able to draw a one metre section of cable out which had been placed in place to give a false appearance of the work being completed. In all, 5 cables were found to have been similarly treated. [32] This was a significant deception, as the absence of the properly tensioned cables had the potential to cause a failure of the entire structure. [33] In the ensuing discussions, Strongforce agreed to repair the cables properly and to pay all associated costs. [34] Rimtel Pty Ltd formulated a claim against Strongforce. That claim became the subject of protracted and expensive litigation firstly in the Supreme Court of Queensland and then in the District Court. [35] The evidence of Ms Easton was that she was advised that Rimtel Pty Ltd had a very good chance of recovery against Strongforce. In essence this belief that one day soon the matter would be resolved, and that Rimtel Pty Ltd would receive a substantial payment, was a hope that she clung to until the appointment of liquidators. [36] Ultimately the liquidator settled the claim against Strongforce on the basis that each party bore their own costs, and no money was recovered. [37] Ms Easton was asked as to the steps she took at the time of the event as to pursuing Strongarm to recover her believed costs and damages. She referred to an invoice dated 31 May 2007 which was sent to Strongarm in an amount of $365,208.27. This was 2 months after the event. Ms Easton said that she had not sought legal advice at the time of the event, or before sending the invoice. [38] The sub-contract with Strongarm did not appear to contain any provisions relating to guarantees or retention monies. [39] The litigation with Strongarm was lengthy and expensive. The Statement of Claim was extensively amended. The matter was strenuously defended and a counter-claim for progress payments was made. [40] The lack of protective provisions in the sub-contract with Strongarm, the failure to seek early legal advice, and the changes in pleading the company’s claim, strongly suggest that Ms Easton did not take prudent steps in entering into the sub-contract or in seeking to recover the claim. If it is accepted that this event was a major contributor to the failure of the company, then these omissions are directly related to the liquidation of the company. Provision for Tax [41] The Report to Creditors of the Liquidators dated 7 September 2011 has a list of creditors at page 16. The total amount was $1,026,085. -- 5 of 9 -- 6 [42] No funds were ultimately paid to creditors. [43] Amounts listed for Commonwealth and State taxation debts were a total of $545,448 made up as follows: Australian Taxation Office $ 302,720 Australian Taxation Office (Super Guarantee) $ 155,389 Office of State Revenue $ 87,339 [44] Ms Easton said that she had never maintained a separate account or fund for the payment of tax. In her view it made no difference if the money was all in one account, which was the everyday business working account. [45] The first arrangement entered into with the ATO as to taxation was on 15 December 2007 for amounts totalling $20,479.41. The reason for the need to enter into this arrangement was not made clear. [46] Several further arrangements were entered into during 2008, and into 2009 and 2010. On 21 December 2010 the ATO refused to enter into any further arrangements on the basis that the company was not viable, and a demand was made by the ATO for payment in full of the sum of $239,205,47 within 7 days. This amount increased to $267,579.97 by 23 February 2011, and could not be met, which led to the liquidation. [47] It is apparent that Ms Easton was operating the business in the hope that sufficient cash would be generated by incoming work, or recovery of the claim against Strongforce, to be able to pay the taxation debts by arrangement. [48] For various reasons these contracts either failed to materialise at all or were delayed, and no recovery was made from Strongforce, leaving the company with no ability to pay the taxation debt when no further arrangements would be entertained by the ATO and they demanded payment in full. [49] The failure to set aside funds for taxation as it became due, whether in a separate account or not, and the need to seek numerous arrangements as to payment indicates that appropriate provision was not being made for Commonwealth and State taxation debts. Ms Easton’s explanations for the financial difficulty [50] Ms Easton has argued in her submissions that several factors led to the liquidation: (a) Pimpama event; (b) Yeppoon event; (c) Marine Parade, Redcliffe project; (d) Global financial crisis; -- 6 of 9 -- 7 (e) Overdraft; (f) Floods; (g) ATO. I will discuss these in turn. (a) The Pimpama Event [51] I have discussed the Pimpama event above. Ms Easton has a fervent belief that the company should have recovered $340,000 plus legal costs of approximately $80,000. This is the best possible result that could have been achieved. [52] In reality, the chances of recovering this full amount and costs from the Pimpama event were uncertain at all times. [53] Ms Easton conceded that her claim was contentious as to the amounts claimed for “Eastfix Steelfixers” of $32,000 which was not paid by the company, and other amounts for extra employees of $52,800 which were open to question as being an extra cost incurred. She said that would have been agreeable to settling the matter for an amount of $200,000 to $250,000 including legal costs, if that had been offered. [54] Sympathy has to be felt for Ms Easton who can be seen as having been the victim of a significant deception by a subcontractor. [55] However, a realistic assessment of the situation, arrived at with prompt legal and financial advice, would have led her to an acceptance that the company was not likely to recover anything like the $340,000 she refers to, and was hoping for. In any event, the other problems of the company were so great that, depending on the timing, even such a recovery may not of itself have been sufficient to stave off liquidation. (b) The Yeppoon event [56] On 8 April 2008 the company received a letter advising that their contract offer had been accepted. Ms Easton described this as a $923,000 job. [57] The company then mobilised and began preparations and expended money in the amount of about $68,000 until 16 July 2008 when they were advised that the project was not proceeding. [58] Ms Easton conceded that it would have been reasonable to have obtained a signed contract before expending money, but she felt confident to proceed in light of the letter of intent. (c) Marine Parade, Redcliffe [59] The company received an email on 15 January 2009 advising that they were to be awarded a contract at Redcliffe which Ms Easton described as a $2 million job. -- 7 of 9 -- 8 [60] However, on 23 March 2010, the company learnt that the job had been given to another subcontractor. [61] The loss of this job caused “downtime” for the company but no monetary loss. (d) Global Financial Crisis [62] The effect of the global downturn was to cause tender awards to fall by 20% in pricing rates. [63] Ms Easton did not say whether she reduced her tender prices by 20% accordingly, and whether if she did so, what profit margin this left in the tender. She does say in her Statement of Evidence that profit margins in the industry were reduced to almost zero. [64] She did not say what strategies she adopted, such as introducing efficiencies or reducing overheads or diversifying in work, to cope with this situation. (e) Overdraft [65] In February 2010 the company applied for an extension of its overdraft from its bank. This caused her bank, the National Australia Bank, to review the state of the company, and on 14 April 2010, it cancelled the existing facility and demanded payment of $112,718.77. The company was unable to meet this demand. [66] This raises the strong suggestion that the company was relying on its borrowings to meet ongoing expenses, and was a situation that should have been addressed by its Directors in a positive manner, rather than just seeking additional borrowings. (f) Floods [67] The Brisbane floods caused the company to lose materials and time. No financial evaluation of this loss was available. [68] The company did not hold any insurance on its plant and materials. Ms Easton explained that this was due to the nature of their industry. The consequence is that the company was “self-insuring” and assumed the risk of any such loss itself. (g) ATO [69] I have dealt with the ATO issues previously. Conclusion [70] The company was affected by a general downturn in the industry, floods, credit availability, and a dispute over the Pimpama project. However, the company had been experiencing difficulty in keeping up with its tax -- 8 of 9 -- 9 obligations, and was having difficulty in securing profitable work, and maintaining its cashflow, for 3 years before the liquidation. [71] The question for consideration is whether Ms Easton took all reasonable steps to avoid the liquidation. [72] The purpose of the provisions of s 56AD were discussed by McGill DCJ in Younan v Queensland Building Services Authority [2011] QCA 1 at [24] where he said: “It is immediately apparent that these are all concerned with the prudent management of a company as an ongoing business, or even, in the case of (b), something which is to be done before one conducts business or enters into financial or business arrangements. In other words, the focus of this subsection is on prevention rather than dealing with problems after they have arisen, except in the case of (c), which is obviously concerned with a situation where a problem has arisen outside of the control of the individual in question.” [73] Ms Easton has invested her own money and a great deal of effort into the company. She has submitted that “through the experiences of Rimtel’s unfortunate events, there would be changes if I were to be successful.” This is a submission as to future action, but the Act requires consideration of past actions. [74] Clearly, there was an ongoing failure to seek appropriate financial or legal advice, to effect appropriate recovery of monies, and to make appropriate taxation provision. [75] The application by Ms Easton must therefore fail. [76] The application is dismissed. -- 9 of 9 --