Copeland v Queensland Building Services Authority
[2013] QCAT 385
| CITATION: | Copeland v Queensland Building Services Authority [2013] QCAT 385 |
| PARTIES: | Paul Copeland (Applicant) |
| v | |
| Queensland Building Services Authority (Respondent) |
| APPLICATION NUMBER: | OCR323-12 |
| MATTER TYPE: | Occupational regulation matters |
| HEARING DATE: | 18 July 2013 |
| HEARD AT: | Brisbane |
| DECISION OF: | Michelle Howard, Member |
| DELIVERED ON: | 26 July 2013 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. The decision of the Queensland Building Services Authority is set aside. 2. Paul Copeland is categorised as a permitted individual. |
| CATCHWORDS: | OCCUPATIONAL REGULATION - APPLICATION TO BE CATEGORISED AS A PERMITTED INDIVIDUAL - where liquidation of company of which applicant was a director - whether applicant took all reasonable steps to avoid the coming into existence of the circumstances which led to the liquidation - where circumstances resulting in the liquidation brought about by a series of events - where applicant took steps including taking advice and putting in place arrangements for credit management - whether all reasonable steps taken Queensland Building Services Authority Act 1991 s 56AD Younan v QBSA [2010] QDC 158, followed |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Mr Copeland represented himself |
| RESPONDENT: | Ms S Van Eyk appeared for the Queensland Building Services Authority |
REASONS FOR DECISION
Mr Copeland holds a builder’s licence. Copeland Holdings (Australia) Pty Ltd (the company) operated a design business which went into voluntary liquidation in November 2010. Mr Copeland was a director of the company. As a result, Queensland Building Services Authority (QBSA) advised Mr Copeland that it considered he was an excluded individual under the Queensland Building Services Authority Act 1991 (the QBSA Act).[1] The consequence is that his building licence must be cancelled by the QBSA, unless he is categorised as a permitted individual.[2]
[1] QBSA Act s 56AC.
[2] QBSA Act ss 56AD, 56AF.
He applied unsuccessfully to the QBSA for permitted individual categorisation. He now seeks review by the Tribunal of the QBSA’s decision to refuse to categorise him as a permitted individual.
The purpose of the review is to produce the correct and preferable decision.[3] For the review, the Tribunal stands in the shoes of the decision-maker (that is, in this case, the QBSA) and makes the decision afresh.[4] The Tribunal’s decision is then taken to be a decision of the decision-maker.[5]
[3] QCAT Act s 20.
[4] QCAT Act s 20.
[5] QCAT Act s 24(2).
A person may be categorised as a permitted individual only if the person took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event[6] which led to the person becoming an excluded individual.[7] The QBSA Act requires that in determining whether all reasonable steps were taken by a person that certain matters must be considered.[8] These include whether the person kept proper books of account and financial records; sought appropriate legal and financial advice; had appropriate credit management arrangements in place; and made appropriate provision for taxation debts. Other matters may also be considered.[9]
[6] See QBSA Act s56AC regarding relevant events.
[7] QBSA Act s 56AD(8).
[8] QBSA Act s 56AD(8A).
[9] QBSA Act s 56AD(8B).
All reasonable steps does not mean all possible steps. The steps are those that were reasonable for the individual in his or her circumstances, with the information he or she had at the time.[10] The focus of the section is on prevention, and about being a prudent business manager.[11] The test has sometimes been described as the ‘reasonable builder test’.[12]
[10] Younan v QBSA [2010] QDC 158 at [26] per McGill DCJ.
[11] Ibid, [24].
[12] For example, see QBSA v Meredith [2013] QCATA 152.
In determining the application, essentially 4 matters are to be determined.[13] Firstly, the relevant event must be identified. Secondly, the circumstances which led to the happening of the event must be identified. Thirdly, a determination must be made about whether the person took all reasonable steps to avoid the coming about of those circumstances. Finally, if so, whether the discretion should be exercised to classify the person as a permitted individual.
[13] Younan v QBSA [2010] QDC 158 at [26] per McGill DCJ.
Mr Copeland’s evidence about the events that transpired is unchallenged. He presented as a credible witness. The available documentary evidence tends to support his version of events. I accept that events occurred as he recounted them.
The Event
There is no issue that the relevant event is the voluntary winding up of the company in November 2010.
The circumstances which led to the happening of the liquidation
Background to the establishment and operation of the business
Mr Copeland was in the process of migrating to Australia on a 5 year temporary visa. He made arrangements for the company’s establishment and for the purchase of an existing design business for $450,000 in 2006. For this purpose, he engaged accountants, Gateway Financial Partners. Lawyers were also engaged for the purchase and to give advice about director’s duties. Although Mr Copeland had operated businesses previously in the United Kingdom and the Middle East, he had not done so in Australia.
The company began operation of the business in December 2006. It was initially a building design business, but later became an architectural practice. It initially operated in the commercial/industrial sector. As Mr Copeland was not a designer or architect, he employed other persons in these roles.
Mr Copeland invested considerable personal capital into the purchase and operation of the business. He explained what might have appeared to be unusual entries in the financial records regarding the purchase of a house by the company. This purchase, made in the very early days of operation through the company, was done on advice because of his non-permanent resident status. I accept Mr Copeland’s explanation including that the associated costs to the company were limited.
Initially, Mr Copeland was successful in increasing turnover and profitability of the business. From December 2006 to June 2007, gross income before deduction of expenses was $367,061 (averaging $52,437 gross per month). Taxable income was $2,576. For the 2008 to 2009 financial year, gross income was $890,691 (averaging $74,224 gross per month). Taxable income of the company was $77,283. Unfortunately, in the 2009-2010 tax year, gross income dropped to $666,772 (which translated to a nett loss of some $103,266), resulting in a taxable loss of $77,968. In 2009-2010, gross income was $199,573. The company made a significant loss of $471,458.
The Global Financial Crisis
From as early as June 2008 when commercial interest rates rose, Mr Copeland says that there were signs that business was slowing in the sector in which he operated. He acknowledges that by late 2008, the global financial crisis (GFC) began to affect the business. There was simply less business available. At this stage, he sought advice primarily from Action Coach, business coaches/consultants, about effective marketing strategies and about whether to seek registration with government for economic stimulus work.
He implemented the strategies and accepted the advice to continue to focus efforts in the private sector, due to the cumbersome process of seeking registration and uncertainties about the stimulus work that would flow from it and the time period for which it would be available. This is a decision Mr Copeland now regrets as the stimulus work lasted several years, and he considers that the companies which concentrated on obtaining that work are still operating.
In the private sector, he ended up taking on work which was non-commercial, less lucrative than previously available and at reduced rates. During this period, some staff left and were not replaced, although no other active strategies were taken to reduce costs. Mr Copeland said that this was because, other than wages, the business had predominantly fixed costs related to the leasing of the premises from which it operated and of equipment. When asked about why steps were not taken to sell motor vehicles, he explained that this was because he needed to be able to get to work.
The liquidation of S & L Developments
In about mid-2008, Scott Juniper, a director of S & L Developments Pty Ltd, approached Mr Copeland to discuss bringing some work to the business. It was Stage 1 of a Noosa project. The work was subsequently done later in 2008. It generated fees of $80,000, the largest for some time. Invoices were paid promptly by S & L Developments.
In late 2008, Scott Juniper asked for some design work for his own home. This was done and the design cost was billed to Mr Juniper. At the time, he said he had some temporary cash flow problems and would endeavour to pay. S & L Developments also engaged the business to do Stage 2 of the Noosa project. It was done and the fees paid in accordance with the usual terms on which the business operated.
Mr Juniper contacted Mr Copeland again, saying that Stage 3 was imminent and that he had a Sippy Downs Project worth $170M due out of Council. He suggested that the cost of the design work for his home be included in the Sippy Downs project design work. Mr Copeland was reluctant to do this, but eventually agreed to on the basis that the personal invoice would remain outstanding until the invoices for design work for the Sippy Downs project was paid. Fees for Stage 1 of the Sippy Downs Precinct job were $65,000. The first part of those works was completed and invoiced in about February 2010.
However, that invoice was not paid. The company followed its usual credit management procedures and was told by S & L Developments representatives that they were refinancing their banking arrangements, but that it would be business as usual once this was done. The next month, April 2010, Mr Copeland learned that S & L Developments had gone into liquidation. Until May or June 2010, he says he was still being told that the company would be paid.
However, neither the progress payment for the Sippy Downs project, nor the design work for Scott Juniper was ever paid. These were the largest outstanding debtors when the company went into liquidation, at $19,937.78 and $12,584 respectively.
Mr Copeland conceded that the amount owed by Scott Juniper personally was not pursued in accordance with the company’s credit management arrangements. He made a commercial decision, that it was preferable to have the relationship with Mr Juniper intact and continue to receive design work through S & L which was offering prestigious and lucrative work in a depressed market for which payment was received in accordance with the company’s credit management terms. It was hoped that the personal work would also be paid for eventually.
Mr Copeland’s Family Law Proceedings
In the meantime, quite apart from the GFC, the business was impacted by the consequences of Mr Copeland’s family breakdown. Mr Copeland and his wife separated in January 2009. The hearing of their property settlement proceedings occurred in February 2010. The business had been valued. A revised valuation became available only in the days immediately before the hearing at $204,383. Mr Copeland considered the valuation was unrealistic but decisions had to be made at the hearing in light of the valuation. Mr Copeland later had the company re-valued on the same information as that used at the time for the purpose of subsequent family law proceedings. It was ascribed a nil value.[14]
[14] Exhibit 1.
That aside, at the hearing in February 2010, it was agreed that the business would be sold. Mr Copeland was subsequently told by business brokers that the business would be difficult to sell in the market as it was at the time, but an indicative value of $60,000-$80,000 was suggested. His wife refused to accept this. The business was eventually placed on the market in August 2010 at $120,000. It did not sell.
Throughout the period, while he tried to keep the intended sale from staff because he was concerned it would be unsettling. However, he reports that his wife spoke openly to staff about what was happening. Mr Copeland says had a destabilising effect on staff. Most left, leaving only the architect, the office manager and Mr Copeland. Then in late August 2010, they both resigned to start their own practice. Mr Copeland was not an architect and was therefore unable to personally continue to operate the business. On the advice of his accountants, he decided to enter the company into voluntary liquidation.
Credit and Business Management Procedures
In addition to their involvement in the acquisition of the business and set-up of the company, Gateway Financial Partners were engaged as accountants on an on-going basis. For the first two years, Mr Copeland met with them to take advice each quarter. They also regularly checked the budgets for the company. He also consulted them on an ad hoc basis, as issues arose. If he had any concerns, he addressed them with Gateway. They prepared comprehensive financial statements for the company. These were provided to the Tribunal. In the final days of the business, Mr Copeland consulted them about options. They gave advice about liquidation.
Monthly in-house management team meetings were also held at which business issues were discussed. Records were kept and prepared electronically on MYOB which were discussed.
MYOB also contained a credit management system. The company adopted a standard credit management procedure. Work was invoiced as soon as completed and payment terms ‘nett 14 days’ were included on invoices.
If payment was not received accordingly, the invoice was resent, stamped with a reminder that the account was overdue. If not paid in 30 days, it was resent marked ‘overdue’. If unpaid at 45 days, the office manager emailed the client requesting immediate payment and then telephoned the client. At 60 days overdue, the procedure was repeated.
After 90 days, the office manager generally advised the client that a debt recovery service would now recover the debt from them. At this stage, Mr Copeland made a decision about the commercial viability of pursuing the debt through a debt recovery agency, given the not insignificant costs of doing so.
Mr Copeland acknowledges that the standard procedure was not inflexibly followed on occasions. In circumstances of an outstanding invoice owed by a client for whom multiple and lucrative other design work had been undertaken, which had been paid for promptly, he occasionally decided on a commercial basis to let a relatively small invoice ‘ride’ on the strong possibility of future work. This happened with the work done personally for Scott Juniper, and also in respect of another client who owed some $668 which was not recovered and owing at the time of liquidation.
Outstanding amounts were discussed at weekly meetings, where the sales register and receivables reconciliation were considered. They were included in the Monthly Management Report.
The unpaid creditors on liquidation of the company
At the time of the liquidation, the amounts (ignoring less than whole dollars) owing to unsecured creditors were the Australian Taxation Office (ATO) $20,339; AGL $821; Australian Equipment Rentals $1,690; Berwicks $2,359; Clear Telecoms $1,139; Professional Collection Services $1,210.
Mr Copeland explained that the debt to the ATO comprised of 2 components. A GST component for the April to June period and withholding tax for July to September. On one previous occasion an arrangement had been entered into with the ATO to pay an amount which was then paid in full in accordance with the agreement. However, he said that on all other occasions, tax was paid as it fell due. He explained that tax was up to date when S & L went into liquidation. He continued to follow up with S & L Developments upon their assurances that they would ultimately be paid until about May or June 2010, when it became clear that the business would not recover anything in respect of the debt.
Mr Copeland explained that two other amounts included in the liquidators report as owing to Workcover Queensland of $955 and PJ and DM Johnson of $4,681 were not unpaid or outstanding. Workcover premiums are paid in advance and the amount referred to was for a period during which the business did not operate. The Johnsons were the lessors and the amount owed to them had been satisfied by the bond held.
The total owing at liquidation and unpaid to creditors was some $27,558.
Debtors owing the company at liquidation
The largest outstanding debtors when the company went into liquidation of were S & L Developments and Scott Juniper who owed $19,937.78 and $12,584 respectively. There were 10 other amounts outstanding, but all were small, one under $100, several for hundreds of dollars and others, for several thousand (the largest one being $4,900).
Debtors totalled some $53,361, of which over $32,500 was owed by S & L Developments and Mr Juniper.
What circumstances were responsible for the liquidation?
The liquidators report opines that economic downturn from June 2008, a drop in clientele, inadequate cash flow and poor debtor recovery were responsible.[15]
[15] Exhibit 5, page 89.
Mr Copeland submits that the circumstance which led to the liquidation were that he personally could no longer operate the business, because he is not an architect. That said, he seems to acknowledge that other factors impacted including market conditions, his family law proceedings which resulted in an attempted forced sale of the business and the liquidation of S & L Developments impacted.
The QBSA suggests that the causes are the debt to the ATO, the GFC, not recovering monies owing to it and the family law proceedings.
My Conclusions
I am satisfied that the coming in to existence of the circumstances which led to the liquidation of the company are the combined and cumulative effects of the GFC (and associated economic downturn resulting in a decrease in clientele), Mr Copeland’s family breakdown (and associated property settlement proceedings), the liquidation of a major client, S & L Developments; and the subsequent inability to pay tax which fell due shortly after S & L entered liquidation.
Did Mr Copeland take all reasonable steps to avoid the coming about of those circumstances?
I have considered the matters in s 56AD(8A).
On the basis of the evidence discussed earlier, I am satisfied that Mr Copeland ensured that the company kept proper books of account and financial records. Comprehensive financial statements have been produced to the Tribunal. In addition, internal MYOB records were kept, budgets developed and monthly management reports produced, scrutinised and discussed.
Professional financial advice was sought by Mr Copeland before the business was purchased, and regularly throughout its operation until the company went into liquidation. He met often with the accountants for a significant portion of the time of operation, and also took advice from them on an ad hoc basis as issues arose. Ultimately, he also sought their advice regarding options and liquidation. He instructed lawyers in relation to the purchase of the business, set up of the company and his duties as a director. During the operation of the business, services of professional debt collectors were engaged. On this basis, I am satisfied that Mr Copeland sought appropriate financial and legal advice before and in conducting business.
I am also satisfied that Mr Copeland made appropriate credit management arrangements. The procedure he explained is comprehensive, sensible and I accept that it was generally followed, unless a commercial decision was made by Mr Copeland that it was either not viable to collect small amounts through a debt collectors, or that in particular circumstances, such as those involving Scott Juniper’s design work, it was more commercially beneficial not to do so because of past experience of lucrative work (and prompt payment for it) flowing from the relationship with the contact.
The appropriateness of the credit management arrangements is demonstrated in the fact that at the time of liquidation, other than the debts associated with S & L and Scott Juniper, a small amount of bad debt was being carried. Although the debt owed by Scott Juniper could have been pursued at an earlier stage when it or some of it may have been recovered, in the scheme of the fees that had been generated through S & L Developments work, the approach taken was reasonable and a legitimate commercial approach to debt collection.
There was greater commercial benefit in maintaining a relationship with Mr Juniper and securing ongoing work than in aggressively seeking to recover this relatively small amount (compared to the fees generated and paid promptly for S & L Developments work), which may more likely than not have soured the relationship and resulted in the business receiving no further work from S & L. This is especially so, in a market which was being depressed by the GFC.
Also, I accept that it is a reasonable step and legitimate to decide in some circumstances of small debts that the costs associated with debt recovery are not justifiable, when there is risk that neither the debt nor the costs associated with recovery may ultimately be recovered. There was not a generally relaxed attitude towards credit management. Business decisions were made from time to time not to implement the usual and established procedures. A judgment was made having regard to the circumstances relating to individual bad debts.
The provision for taxation debts initially appeared more troubling. Mr Copeland says taxation was generally paid as it was due. There was one exception, in relation to which a payment arrangement was earlier entered into with the ATO and honoured in full. Mr Copeland’s evidence does not suggest that monies for tax were, for example, banked into a separate account. On the face of it, it seems that this may be an unsatisfactory manner in which to operate.
However, record and report keeping was extensive. Monthly management meetings were held and MYOB reports and regular budgets[16] were produced. Budgets were regularly checked by the accountants. A track was kept of GST. It is reasonable to infer, and I do draw the inference, that Mr Copeland did budget for taxation due. This conclusion is supported by the reality that the only amounts unpaid were for the period after the default by, and subsequent liquidation of, S & L Developments. I accept that, although finances had tightened, tax provision had been adequately made. It was only after the default of a major debtor that tax liabilities accrued which the company was unable to meet.
[16] For example, Exhibit 5, pages 79-80.
The other matters referred to in s56AD(8A) do not appear to be relevant.
I am entitled to take into account other matters in deciding whether all reasonable steps were taken.[17]
[17] QBSA Act s56 AD(8B).
Mr Copeland’s evidence also reveals other steps taken to avoid the circumstances that resulted in the liquidation. He took advice from business consultants once the GFC became evident in order to best position the business to trade successfully through the economic downturn. He did have some success initially, as the 08-09 figures demonstrate. As Mr Copeland suggested, in hindsight a better decision or step may have been to pursue government stimulus work. However, the steps taken are to be considered, not in hindsight, but with the information a person had at the time. He made the decision he thought best based on the knowledge and advice that he then had.
Given the conclusions I have reached about the circumstances which led to the happening of the event, it is evident that these were mainly outside of Mr Copeland’s control. Mr Copeland was not responsible for the GFC and its consequences. He was not responsible for the timing of the hearing of his property settlement proceedings. He agreed to sell the business, but it appears his only other choice might have been to accept the business as part of his share of the property pool at a value which he regarded as unrealistic and inflated at the time. He tried to minimise the effect of the proposed sale of the business, but his former wife did not. He was also not responsible for S & L’s liquidation. Indeed, until a short time before its demise, it was a good client of the company, which generated very significant fees for it. Once this major client failed, the business was then unable to pay debts, and in particular the largest owing to the ATO, when they subsequently fell due. Even so, the amounts owing at liquidation were modest.
Events conspired against the ongoing success of the company. These, each in their own way, contributed to its ultimate downfall.
However, Mr Copeland took a considered, responsible and conscientious approach to his duties as a director of the company and to decision-making for the company generally. He took advice from appropriate professionals. He made appropriate arrangements for the company’s management. Until the unexpected failure of a major client, all debts were able to be met as they fell due.
I am therefore satisfied that Mr Copeland took all reasonable steps to avoid the coming into existence of the circumstances which led to the liquidation.
Should Mr Copeland be categorised as a permitted individual?
The QBSA conceded that, if the Tribunal was satisfied that all reasonable steps were taken, that there are no factors which indicate that the discretion should not be exercised to categorise Mr Copeland as a permitted individual. I agree with that assessment.
I am satisfied that it is appropriate to exercise the discretion to categorise Mr Copeland as a permitted individual.
Accordingly, I make orders setting aside the decision of the QBSA to refuse categorisation, and categorising him as a permitted individual.
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