Doyle v Queensland Building Services Authority (No 2) [2011] QCAT 51

CITATION: Doyle v Queensland Building Services Authority (No 2) [2011] QCAT 51 PARTIES: Mr Phillip John Doyle v Queensland Building Services Authority APPLICATION NUMBER: QR109-09 MATTER TYPE: General administrative review matters HEARING DATE: 21 October 2010 HEARD AT: Brisbane DECISION OF: Christopher Coyne, Member DELIVERED ON: 10 February 2011 DELIVERED AT: Brisbane ORDERS MADE: The reviewable decision in QR109-09 is confirmed. CATCHWORDS : Queensland Building Services Authority Act 1991 Section 56AD permitted individual, whether Applicant took all reasonable steps to avoid coming into existence of the circumstances relating to the relevant event APPEARANCES and REPRESENTATION (if any): APPLICANT : Mr Phillip John Doyle represented by Mr Geddes, Solicitor RESPONDENT: Queensland Building Services Authority represented by Mr Cole -- 1 of 11 -- QR109-09 / Page 2 of 11 REASONS FOR DECISION Introduction 1. The Applicant filed two (2) applications to review two (2) decisions of the Queensland Building Services Authority (“the Authority”). Those decisions were:- i. A decision of the Authority on 6 April 2009 to refuse to categorise the Applicant pursuant to section 56AD of the Queensland Building Services Authority Act 1991 (“the QBSA Act”) as a permitted individual for a relevant event (“the permitted individual decision”); and ii. A decision of the Authority on 21 December 2009 to suspend the Applicant’s licence number 77678 pursuant to section 48(I) of the QBSA Act (“the licence suspension decision”). 2. The Applications for review were listed to be heard together. At the commencement of the hearing, the parties’ representatives advised me that it was their understanding that only the review application relating to the permitted individual decision had been listed for hearing and that they were not aware that the review application for the licence suspension decision had also been listed for hearing. Neither party were in a position to proceed with the review application for the licence suspension decision and asked that Directions be made adjourning that review application pending the outcome of the review application on the permitted individual decision. Presumably the logic being that if the Applicant’s review application on the permitted individual decision is not successful, then the Applicant will be an excluded individual under the QBSA Act. In those circumstances, the review application relating to the Applicant’s licence cancellation becomes academic. 3. Accordingly, on the invitation of the parties, I ordered that the review application OCR017-10 be adjourned to a date to be fixed pending the decision or earlier settlement of the review application QR109-09 and/or the debt recovery proceedings instituted by the QBSA against the Applicant in the District Court at Southport. I made no order as to costs in relation to the adjournment of OC017- 10. The evidence in QR109-09 4. Applicant’s material - the Applicant relied upon: i. His application dated 3 May 2009; ii. His first statement filed on 5 November 2009 - marked exhibit 1; iii. His further statement filed on 19 August 2010 - marked exhibit 2; iv. His final statement filed by leave on 21 October 2010 - marked exhibit 3. 5. The Applicant also gave oral evidence and was cross examined. 6. The Authority’s material - the Authority relied upon: i. The statement of reasons for the decision filed on 21 August 2009; -- 2 of 11 -- QR109-09 / Page 3 of 11 ii. The statement of Natasha Dennis filed on 21 August 2009 - marked exhibit 5; iii. The further statement of Natasha Dennis filed on 2 September 2010 - marked exhibit 6. 7. Ms Dennis also gave oral evidence and was cross examined. Relevant Chronology 8. The Applicant has: i. Since April 2003 held a Trade Contractor Licence with the Authority in the class of roof and wall cladding; ii. Since September 2005 held a Builder Licence with the Authority in the class of builder-low rise. 9. On 6 October 1981 Topline Home Improvements Pty Ltd ACN 002 270 519 (“the Company”) was incorporated. The historical extract from the records maintained by the Australian Securities & Investments Commission record: i. On 30 July 1993 the Applicant was appointed a director of the Company and was from 20 May 2008 the sole director of the Company; ii. Between 17 January 1991 and 19 May 2008, the Applicant’s former spouse, Mary Bernadette Doyle, was a director of the Company; iii. On 23 January 2009 the Applicant passed a resolution for the winding up of the Company; iv. On 23 January 2009 Ms Susan Carter and Mr Jason Bettles were appointed liquidators of the Company (“the Relevant Event”). 10. On 6 April 2009 the Applicant’s Builder Licence and the Applicant’s Trade Contractor Licence were suspended for failure to pay the Authority’s licence fee. 11. On 21 December 2009 the Authority suspended the Applicant’s licence number 77678 pursuant to section 48(I) of the QBSA Act as the Applicant had failed to comply with a demand by the Authority to discharge an insurance claim debt to the Authority. 12. On 29 January 2010 the Tribunal granted a stay of the Authority’s decision made on 21 December 2009 pending a hearing of a review of that decision. This is review application OCR017-10. The Law 13. The key provision is section 56AD(8) of the QBSA Act which relevantly provides that: “The Authority may categorise the individual as a permitted individual for the relevant event only if the Authority is satisfied, on the basis of the application, that -- 3 of 11 -- QR109-09 / Page 4 of 11 the individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event.” 14. Section 56(8)(A) sets out matters to which the Authority must have regard in determining whether a person took all reasonable steps: “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 Authority 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 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.” 15. Section 56(8)(B) provides that: “Nothing in subsection (8A) prevents the Authority 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.” 16. In Younan v Queensland Building Services Authority [2010] QDC158 His Honour Judge McGill DCJ made the following points in relation to these sections: ƒ At [24] when having regard to the criteria in section 56AD(8A): “…. the focus of this subsection is on prevention rather than dealing with problems after they have arisen”. ƒ At [25]: “the test outlined in section 56AD(8) requires: 1. the identification of the relevant event, 2. the identification of the circumstances that resulted in the happening of the relevant event, 3. a consideration of whether the relevant individual took all reasonable steps to avoid those circumstances coming into existence, and if satisfied of that, 4. a decision whether to categorise as an individual as a permitted individual.” -- 4 of 11 -- QR109-09 / Page 5 of 11 ƒ At [26]: “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. It is not a question of whether he did everything possible to prevent these circumstances from arising, or whether they would not have arisen if he had acted differently. The reasonableness of his behaviour must be assessed by reference to what was known by him at the time, without the benefit of hindsight.” ƒ At [37] on the issue of onus: “…. subsection (8) authorizes the characterization of an individual as a permitted individual only if the Authority was satisfied of the relevant matter on the basis of the application that is to stay on the basis of the case made by the Applicant. It follows that if relevant considerations are not addressed by the Applicant, so that the Applicant fails to show in a relevant respect that he took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event, then the application will fail.” Relevant Event 17. The relevant company event for the purposes of Section 56AC(2) of the QBSA Act was the appointment of Susan Carter and Jason Bettles of Worrells Solvency and Forensic Accountants as liquidators of the Company. The appointment was made on 23 January 2009. Identification of the circumstances that resulted in the happening of the Relevant Event 18. The appointment of the liquidators was made following a company resolution passed by the Applicant, as the sole director, for the company to be wound up. The Applicant had previously taken advice from Mr Carey of Worrells Solvency and Forensic Accountants in relation to a debt recovery and also the company’s obligations to its creditors. 19. On the hearing of the review application, the Applicant identified what he said were the causes of the company being placed in liquidation, namely: i. The property settlement with his former spouse; ii. The economic conditions affecting the building industry at the time; iii. An outstanding trading debt on a duplex construction; iv. Pressure from a trade creditor. Did the Applicant take all reasonable steps to avoid the circumstances coming into existence? Property Settlement 20. On 19 December 2007 the Applicant and his former spouse entered into a property settlement in terms of which his spouse was to receive: i. The sum of $545,000; -- 5 of 11 -- QR109-09 / Page 6 of 11 ii. A new Toyota motor vehicle valued at $23,500; iii. Reimbursement of her legal fees and expense; iv. Maintenance of $20,000 per annum. 21. The Applicant states that in terms of the settlement with his former spouse, he was to receive the proceeds of the sale, after payment to his spouse, of a number of properties identified as: i. 19 and 21 Perry Place, Biggera Waters; ii. 8 Annoula Avenue, Biggera Waters; iii. 1/48 Vaggelas Crescent, Biggera Waters; iv. Unit 1 and 2/38 Vaggelas Crescent, Biggera Waters (then under construction); and v. To retain his interest in the company. 22. He stated that the property values deteriorated as a result of the global financial crisis and that the net settlement after sale of the properties approximated $160,461 rather than the $569,000 which he had anticipated. 23. He explained that at that time the company was building a pair of duplexes at Biggera Waters which was a speculative project by the company. He said this placed financial strain on the company. 24. The Applicant says that the various properties were sold in order to fund the matrimonial property settlement. In doing so, the Applicant says that he lost the use of a line of credit which was secured over the former matrimonial property. As a consequence, the Applicant says that he had to change his business practice from building speculative duplexes to undertaking contract works. 25. The company did enter into a contract to build townhouses for people by the name of Diehm on 8 September 2007. By 22 December 2008 the Applicant says that he and the Diehms agreed that the construction of the duplex had reached the stage of practical completion. However, the Diehms were reluctant to pay the company due to alleged defective works and omissions. The Applicant says he took legal advice on 18 December 2008 on steps to recover payment of the monies owing and on 14 January 2009 issued a letter of demand against the Diehms for the monies outstanding. 26. On 23 December 2008 the Applicant attended an appointment with Brian Carey from Worrells Solvency and Forensic Accountants and took advice as to the company’s obligations to its creditors and sought Mr Carey’s advice on attending a mediation hearing with the Master Builders Association to recover the debt from the Diehms. The Applicant says that Mr Carey advised him that it was difficult to recover debts once a company had been placed in liquidation and that it would be more beneficial if the company settled on an amount at mediation. The Applicant says that he attended the mediation on 19 January 2009 and agreed to a settlement on behalf of the company in the sum of $25,000. He says the balance of the debt then outstanding, $73,973.82, was then treated as a bad debt. -- 6 of 11 -- QR109-09 / Page 7 of 11 27. In the interim, a trade creditor was bringing pressure upon the company for payment of its account. The business by the name of BJB Cabinets was owed approximately $16,455. The Applicant was in dispute with BJB Cabinets in relation to the quality of their workmanship. On 16 October 2008 the Applicant wrote to the adjudicator appointed under the Building Construction Industry Payments Act 2004 (“BCIPA”) advising that an independent cabinet maker had assessed the cost of rectification works to be in the sum of $3,479.42. However, by 28 October 2008, the adjudicator handed down a decision requiring the company to pay the full amount outstanding to BJB Cabinets. The Applicant wrote to BJB Cabinets on 28 October 2008 advising that he would not pay the outstanding amount until all defects were rectified. In examination, the Applicant admitted that he did not seek any legal advice in relation to his rights under the BCIPA in relation to this adjudication. Following the adjudication of the claim under the BCIPA a judgement was given in favour of BJB Cabinets. The Applicant stated that the company paid approximately $5,000 in rectifying the defective work so the company was therefore reluctant to pay the judgement. 28. The Applicant stated in evidence that BJB Cabinets then placed the matter in the hands of their legal advisors and proceeded to take steps to wind up the company. It was the pressure from this trade creditor which was one of the motivating factors in the Applicant resolving to wind up the company. During the course of examination of the Applicant, it was noted that the company received the settlement monies of $25,000 from the Diehms on 25 January 2009. The Applicant was asked what became of those monies. By way of response, he said the monies were paid to various creditors but not to BJB Cabinets. 29. In his statement filed on 21 October 2010, the Applicant admits that the debts owing by the company at liquidation amounted to the sum of $712,726.57. These debts comprised: i. Monies owing to subcontractors and suppliers for construction work at 22 Annoula Avenue Biggera Waters - the sum of $139,181.51; ii. Australian Taxation Office - $8,258.70. The Applicant conceded that this was the debt owing to the Commissioner of Taxation consequent upon the company’s last building activity statement (BAS); iii. Building Services Authority - the sum of $169,330.10. The Applicant says this debt is in dispute. This appears to be a debt claimed by the Authority for insurance payments made to complete building works by the company. iv. Naoko Hanaski - the sum of $27,395 - again this is a claim which the Applicant disputes though which has been admitted by the liquidator; v. The Applicant personally - the sum of $368,561.26. This is a director’s loan made by the Applicant. 30. Having considered the Applicant’s statements and the evidence which he gave on the hearing, I am drawn to the conclusion that he did not take all reasonable steps to avoid the circumstances which led to the company’s insolvency. 31. The liquidators have admitted proofs of debts amounting to $712,726.57. Whilst the Applicant continues to dispute some of these debts, it is apparent that the -- 7 of 11 -- QR109-09 / Page 8 of 11 company was in a financially parlous state. It is also clear that the company entered into the latter building contracts at a time when it had lost its line of credit with Perpetual Trustees Victoria Ltd. The company needed an injection of capital in order to continue to trade. It does appear that the Applicant had some ability to fund the company but, for his own reasons, chose not to do so. In this regard I note his evidence that he and his former spouse have since entered into a deed of compromise with creditors in the sum of $110,000.00 which compromise was accepted at a meeting of creditors on 30 October 2009. I also note that in the Applicant’s review application in OCR017-10 he submitted that he had the ability to pay the debt then claimed by the Authority. He stated that the source of those funds was to be: i. A dividend he expected to receive from the company’s liquidation of approximately $60,000; ii. The balance to be raised from the sale of a property owned by him at 8 Crocos Way, Gaven, Queensland. 32. I also note the Applicant’s submissions to the Authority in his letter of 10 December 2009 to the effect that it was his understanding that the QBSA insurance scheme would fund the costs of rectification works whilst the company was in liquidation and that he would not personally be liable for those costs. 33. The Applicant has, by entering into the property settlement with his former spouse, placed his company in a position that, short of a capital injection settlement, the company had limited ability to continue to trade. There is a clear absence of any evidence of a business plan or accounting analysis of how the company could continue to trade once the various properties had been realised to fund the property settlement and the line of credit extinguished. The Applicant attributes part of the cause of the company’s insolvency being its inability to recover the trading debt owed by the Diehms. However the evidence shows that this debt was compromised in the sum of $25,000. There is no evidence before me to say that this was not a reasonable compromise taking into account the obvious concerns the Diehms had in relation to the state of the works. There was pressure from a trade creditor BJB Cabinets which obtained a BCIPA adjudication and ultimately a judgement. The Applicant’s evidence is that he would not pay the judgement amount until the defective works had been completed. However there is also evidence that the Applicant paid a sum approximating $5,000 to have those works rectified and it is difficult to reconcile this obvious conflict in his evidence. Suffice to say, it appears the Applicant made no attempts to reach a compromise or to negotiate terms for payment of this debt when the company did have the sum of $25,000 available which it received from the Diehms on 25 January 2009. It is not clear what became of those monies other than the Applicant’s statement in evidence that it was paid to various creditors. Section 56 AD(8A) Issues 34. The Applicant in his first written statement specifically addressed the issues in section 56AD(8A) being matters to which the Authority (and on review the Tribunal) must have regard, in deciding whether the Applicant took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event. (a) Keeping proper books of account and financial records The Applicant’s evidence was that the company did keep proper books of accounts and records utilizing the 7 Star business -- 8 of 11 -- QR109-09 / Page 9 of 11 solutions software program. A statement was provided by a Mr Noffke who would visit the Applicant, usually quarterly, to ensure the integrity of his data prior to lodgement of the Business Activity Statements (BAS) and also check the financial statements before passing them on to the accountant. A statement was also provided by a Mr Fildes who is the Applicant’s accountant. Mr Fildes states that he has known the Applicant for 9 years and that at all times he was presented with accurate, up-to date accounting records sufficient for accounting and income tax requirements. He stated that in his belief the software program used by the Applicant produced all necessary accounting reports required under the income tax act and was therefore sufficient to maintain proper books and records. On the hearing of this review application, the Applicant tended the company’s financial statements for the year ending 30 June 2008. These financial statements showed that for the financial year ending 2007 the company made a loss of approximately $169,000 and for the financial year ending 30 June 2008 it made a loss of approximately $59,500. Earlier in the Applicant’s statements he said that the signs of financial difficulty occurred in late 2007 and this became manifest in late 2008 when the company was being pressed for payment by creditors. In light of the Applicant’s property settlement necessitating the sale by the company of its properties and the consequential loss of the line of credit, it is difficult to accept the proposition that proper books of accounts and financial records were being maintained in the latter part of 2008 leading up to the liquidation of the company. (b) Seeking appropriate financial or legal advice before entering into financial or business arrangements and conducting business The Applicant gave evidence that he had sought over a number of years financial advice from a Mr Norris of Future Financials, business advice from Mr Fildes and legal advice from a number of solicitors. Relevantly, the Applicant did not give evidence that he sought financial or business advice before engaging in the contract work which was to be completed within a relatively short time frame. It would have been a reasonable step for the Applicant to seek financial, business and legal advice as necessary as to the viability of, the structuring and documentation of such a change to his business practice. It was ultimately delays managing his cash flow from the duplex constructions and issues as to the quality of the construction works which led to the Company’s financial issues. The Applicant also, as previously mentioned, conceded that he did not seek legal advice regarding the BJB Cabinet’s claim. (c) Reporting fraud or theft to the police - this was not a relevant consideration. -- 9 of 11 -- QR109-09 / Page 10 of 11 (d) Ensuring guarantees provided were covered by sufficient assets to cover their liability - this was not a relevant issue. (e) Putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts. The Applicant in his written statement speaks of progress claims being outstanding from the Diehms in relation to the company’s construction of their duplexes. It appears from what he says that the Diehms financier paid the progress claim sums directly to the Diehms, who then withheld those payments from the company. There were obviously issues concerning alleged defective works and omissions to the works. He then gave evidence that he issued a letter of demand and ultimately attended at a mediation at which he agreed to accept $25,000 in settlement of the monies owing. It is the Applicant’s case that he was forced to accept this compromise as he could not afford the time or the cost to litigate with the Diehms. It seems tolerably clear that by this stage the company was in dire financial straights which is prima facie evidence that the company did not have in place appropriate credit management arrangements and it was not taking reasonable steps to recover accounts when they were due and payable in the normal course of business. (f) Making appropriate provisions for Commonwealth and State Taxation Debt. The Applicant in his written statement states that the company’s software program made provision for the GST payment quarterly and as the company always operated on a cash basis (not relying on an overdraft) any taxation payment owed would be taken directly from cash on hand. It is difficult to accept the Applicant’s statements as it is clear that the Company was operating utilizing the credit line of $660,000 together with substantial directors’ loans. The Company was not in a position to pay the GST liability when it fell due. The liquidator has admitted a proof of debt from the Australian Taxation Office of $8,258.70. The Company had not made appropriate provision for this liability. 35. On all the evidence, I am not satisfied that the Applicant took all reasonable steps available to him at the time to avoid the Company’s insolvency and the appointment of liquidators. 36. As the threshold issue has not been determined in the Applicant’s favour, it is not necessary to consider whether the discretion should be exercised to categorise the Applicant as a permitted individual. 37. I therefore make the following orders: (a) The decision of the Authority dated 6 April 2009 to refuse to categorise the Applicant as a permitted individual be confirmed; (b) Any party who seeks costs has to file in the registry one copy and deliver to the other party one copy of written submissions by 4.00pm on 25 February 2011; -- 10 of 11 -- QR109-09 / Page 11 of 11 (c) Any party that wishes to file written submissions in reply will file in the registry one copy and deliver to the other party one copy of written submissions by 4.00pm on 11 March 2011; (d) Any application for costs will be determined by the Tribunal on the papers, unless the party requests in writing to be heard. -- 11 of 11 --