Gary Morrison Constructions Pty Ltd v Queensland Building Services Authority
[2011] QCAT 389
•9 August 2011
| CITATION: | Gary Morrison Constructions Pty Ltd v Queensland Building Services Authority [2011] QCAT 389 |
| PARTIES: | Gary Morrison Constructions Pty Ltd |
| v | |
| Queensland Building Services Authority |
| APPLICATION NUMBER: | OCR250-10 |
| MATTER TYPE: | Occupational regulation matters |
| HEARING DATE: | 8 August 2011 |
| HEARD AT: | Brisbane |
| DECISION OF: | Peta Stilgoe, Member |
| DELIVERED ON: | 9 August 2011 |
| DELIVERED AT: | Brisbane |
ORDERS MADE: | Application dismissed. The Authority’s decision that the applicant not be categorised as a permitted individual is affirmed. |
| CATCHWORDS: | PERMITTED INDIVIDUAL – where licensee bankrupt – where licensee had significant personal credit card debt – whether licensee keep proper books of account – whether licensee took appropriate advice – whether licensee took reasonable steps to recover debt Queensland Building Services Act 1991, ss 56AC, 56AD(8), 56AD(8A), 56AD(8B) Younan v QBSA [2011] QCA 1 |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Mr G Morrison on behalf of Gary Morrison Constructions Pty Ltd |
| RESPONDENT: | Ms J Stroud, in-house legal officer of Queensland Building Services Authority |
REASONS FOR DECISION
Mr Morrison is the sole director of Gary Morrison Constructions Pty Ltd (GMC). He was declared bankrupt on 2 June 2010. Pursuant to the operation of s 56AC of the Queensland Building Services Act 1991, Mr Morrison became an excluded individual. Unless he was granted the status of a permitted individual, Mr Morrison could no longer hold a licence under the Act.
Mr Morrison applied to the Authority to be a permitted individual. That application was not successful. He has applied to the tribunal for a review of that decision.
The tribunal may categorise Mr Morrison as a permitted individual if he took all reasonable steps to avoid the “coming into existence of the circumstances that resulted in” his bankruptcy.[1] In deciding that question, I must have regard to action taken by Mr Morrison in relation to:[2]
a)Keeping proper books of account and financial records.
b)Seeking appropriate financial or legal advice before entering into the financial or business arrangements or conducting business.
c)Ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantees.
d)Putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts.
[1] Section 56AD(8) QBSA Act.
[2] Section 56AD(8A) QBSA Act.
I am also entitled to have regard to other matters for deciding whether Mr Morrison took all reasonable steps to avoid his bankruptcy.[3]
[3] Section 56AD (8B) QBSA Act; Younan v QBSA [2011] QCA 1 at [23].
Judge McGill has given guidance as to how a tribunal should give consideration to these matters[4]:
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.8 In other words, the focus of this subsection is on prevention rather than dealing with problems after they have arisen …[5]
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.11 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.[6]
[4] Younan v QBSA [2010] QDC 158.
[5] At [24].
[6] At [26].
Mr Morrison has the obligation of demonstrating to the tribunal that he took all reasonable steps to avoid his bankruptcy.[7]
[7] Younan v QBSA, supra at [37].
Mr Morrison told the tribunal that he had been engaged in building and construction since 1995. He worked as a sole trader until 2004, then under the company structure of GMC.
He says that GMC was a successful company with a strong reputation. He provided the tribunal with a number of statements from people who engaged GMC and who are happy with its work. Mr Morrison did not provide the tribunal with any financial records from 2004 to 2007 which would show that he, or GMC, was financially successful. Throughout this period, GMC did mostly refurbishment or renovation work. The value of the biggest contract undertaken was about $50,000.
Some time in either late 2006 or March 2007, GMC entered into a cost plus contract to build a warehouse for Heday Pty Ltd. Mr Morrison was a friend of Heday’s director Mr Giddings. The two of them used to have lunch every week and Heday had previously engaged GMC to do renovation work.
[10] Mr Giddings has provided an affidavit to the tribunal but neither GMC nor Heday can find a copy of the contract. Mr Morrison says[8] that the relevant terms were:
a)Preliminary planning and certification would commence in or about October/November 2006.
b)The works would start February 2007 and be completed by July/August.
c)The price to construct was $740,000.
d)Invoices would be sent monthly on a costs plus 10% basis unless Mr Morrison requested more frequent payment.
e)Variations would be an additional cost.
[8] Affidavit sworn 13 May 2011, paragraph 10.
[11] Despite extensive evidence from Mr Morrison and Mr Giddings, I am not convinced that the terms were as Mr Morrison described. It is clear, however, that Mr Morrison did not understand the contract. It was either a costs plus contract, in which case variations were irrelevant, or it was a fixed price contract.
[12] At the same time, Mr Morrison was undertaking refurbishing work for Heday on site but on a different building and outside the parameters of the contract. Mr Morrison’s records show that Heday paid GMC over $1M during the 2007 calendar year but no one knows how much of this relates to the project and how much to the refurbishing.
[13] Towards the end of the construction period, Heday received an unexpected bill for infrastructure charges. The imposition of the charge coincided with the Global Financial Crisis. Mr Giddings told Mr Morrison that Heday could not pay the infrastructure charge and the remaining payments for the building. They agreed that GMC would keep building, covering its own costs, and Heday would pay those bills when it could.
[14] Mr Morrison says he decided to cover the remaining costs by using his personal credit cards. He thought that it would be a short term problem. It turns out that Heday took almost two years to pay the remaining debt. It was too late for Mr Morrison. He could not pay his credit card commitments and Citibank, one of the card issuers, placed him into bankruptcy.
[15] Mr Morrison says that the causes of his bankruptcy were:
a)The effect of the GFC.
b)Excessive interest payments on his credit card.
c)The inability to recover money from Heday.
d)Meeting GMC’s obligations even though he was not obliged to do so.
e)Citibank’s refusal to allow any concessions on the card payments.
[16] As it emerged at the hearing, the reality of Mr Morrison’s position was somewhat different.
[17] Prior to entering into the contract with Heday, Mr Morrison had personal credit card debts of approximately $100,000. Some of that $100,000 related to GMC expenses and some to personal expenses but Mr Morrison was not able to tell the tribunal how much was personal debt and how much was GMC debt. The minimum payment per month was $3,500. Mr Morrison’s annual income was no more than $26,000 and he had no assets. Mr Morrison kept his credit providers at bay by taking new credit cards and transferring the debt from one to the other. He was circulating the debt between card providers.
[18] Mr Morrison’s only source of income from the Heday project was the 10% margin. He thought that a project of $740,000 would result in a profit of $74,000, which would enable him to reduce his credit card debt by this amount. He thought that he would be able to manage the reduced debt. It is clear that Mr Morrison makes no distinction between “his” money and GMC’s money.
[19] The minimum monthly payment rose to $5000 per month as Mr Morrison increased his debt. At the start of the project, he paid the monthly payment with funds from the Heday project. When that money stopped, Mr Morrison couldn’t pay his cards.
[20] The Authority submits that the cause of Mr Morrison’s bankruptcy was his high level of personal debt before GMC started the Heday project. I agree.
Keeping proper books of account and financial records
[21] The tribunal heard from Mr Greening, accountant for GMC and Mr Morrison. Mr Greening said that the accounts for both were kept in good order. When asked what he meant by that, Mr Greening said that Mr Morrison provided the information promptly and it was well organised.
[22] Mr Greening did not attend to Mr Morrison’s affairs personally and the work was limited to preparation of income tax returns, the QBSA annual returns and quarterly BAS returns. His firm relied on the information provided by Mr Morrison and did not conduct any independent examination of the source documents. Mr Greening never provided financial advice and never advised Mr Morrison about things such as profitability, margins or cash flow.
[23] Because the accounts were prepared on a cash accounting method, they did not record debtors and creditors. Therefore, the debt from Heday does not show up in GMC’s accounts. Mr Greening did not look at the level of debt carried by either Mr Morrison or GMC. He knew that Mr Morrison carried debt but he was not aware of the extent until Mr Morrison asked him to help complete the statement of affairs.[9]
[9] Exhibit GM10 to Mr Morrison’s affidavit sworn 27 January 2011.
[24] Mr Greening was also aware that Mr Morrison was using his personal credit cards to pay GMC expenses and that Mr Morrison had drawn cash on his card to pay money into the GMC account. Mr Morrison told the tribunal that he had paid over $50,000 of GMC expenses on the Heday project through his personal credit cards.[10] This does not appear in GMC’s financial statements and Mr Greening could not tell the tribunal why.
[10] Exhibit GM1 to Mr Morrison’s affidavit sworn 13 May 2011.
[25] Mr Morrison told the tribunal that he did not have any formal accounting system. Mr Greening thought that this was unexceptional for a company of that size. He maintained that, in his opinion, Mr Morrison kept adequate books of account and financial records.
[26] Mr Greening did not know that Mr Morrison had substantial personal debt before he took on the Heday project. Mr Greening told the tribunal that, had he been aware of the debt, he would have advised Mr Morrison not to proceed without more (and better?) finance being available.
[27] While I accept that Mr Morrison’s accounting methods may have been appropriate for a company with no more than ten clients and contracts to a maximum of $50,000, I do not accept that the accounting methods were appropriate for taking on a project the size and scope of the Heday project. Mr Morrison’s own evidence highlights the inadequacy. He:
a)Had no idea how much Heday had paid over the course of the project.
b)Had no idea how much the project had cost GMC.
c)Could not identify which payments were made for the project and which for the refurbishment.
d)Continued to mix personal and business expenses.
e)Did not know where, or how, the GMC accounts recorded payments made on his personal credit cards.
f)Thought that a regular account balance of $20,000 was sufficient working capital for GMC to undertake the Heday project.
g)Admitted that he was transferring GMC debt to his personal account. That suggests that, if the project had proceeded properly through GMC, the company would not have been able to pay its debts as and when they fell due.
[28] I am not satisfied that Mr Morrison kept proper books of account and financial records.
Seeking appropriate financial or legal advice
[29] Mr Morrison says that he regularly sought advice from his solicitor, John Evans. It is true that Mr Evans says that Mr Morrison informed him that he was having trouble receiving payment from a major debtor “on numerous occasions”.[11] Mr Evans does not say when these discussions took place or whether Mr Morrison wanted him to take any action. He does say that Mr Morrison finally instructed him to send a letter of demand on 29 October 2009, almost two years after the debt accrued.
[11] Affidavit of John Evans sworn 11 March 2011 at [3].
[30] Mr Evans says that Mr Morrison told him the debtor was facing financial difficulty and that it would be difficult to recover the debt. Mr Evans did not undertake any searches to see what property Heday owned. He did not discuss asking for a personal guarantee or another form of security. He did not suggest that GMC issue a statutory demand.
[31] Mr Morrison did not seek any legal advice about the contract before he signed it.
[32] I have already canvassed Mr Greening’s role in providing advice to Mr Morrison and/or GMC. Mr Morrison did not seek any financial advice from Mr Greening prior to entering into the Heday contract.
[33] I had the benefit of evidence from a financial planner, Mr Conyngham. He says that Mr Morrison sought his advice on two occasions. The first occasion was in early 2007 when Mr Morrison had various suppliers and subcontractors to pay. Mr Conyngham told Mr Morrison he had two options: stop paying the suppliers; or use his credit cards if it was only a short term problem.[12]
[12] Affidavit Mick Conyngham sworn 13 May 2011 at [4].
[34] That evidence confirms my view that the true cause of Mr Morrison’s problems was his pre-existing debt and/or GMC’s lack of capital for such a big project. The Heday project’s expenses should not have been causing problems at this early stage, particularly if Mr Giddings is correct in his evidence that Mr Morrison was being paid weekly upon presentation of an invoice.
[35] Mr Conyngham had another conversation with Mr Morrison in early 2008. This time, Mr Morrison produced some financial documentation for Mr Conyngham’s review and openly discussed his financial position.[13] Mr Conyngham’s news was no better this time around. He advised Mr Morrison to try to consolidate his debt but, as Mr Conyngham told the tribunal, that would be difficult when Mr Morrison had no assets and limited income.
[13] Affidavit Mick Conyngham sworn 14 March 2011 at [3].
[36] I accept that Mr Morrison also received advice about the effect of his impending bankruptcy.
[37] I accept that Mr Morrison received financial and legal advice. For the reasons above, I do not accept that the advice was appropriate. It was not timely, it was provided by men who were not aware of Mr Morrison’s true financial position and it was not comprehensive.
Credit management - taking steps to recover the Heday debt
[38] I have already noted that Mr Evans did not give Mr Morrison advice about the ways in which the Heday debt could be recovered or secured.
[39] Heday has not gone into liquidation. It has, or had, significant assets in the warehouse that GMC built and the factory that it refurbished. Mr Morrison knew that Mr Giddings owned and operated a car sales yard. An examination of the ASIC search for Heday[14] suggests that, if it took on debt to complete the project with Mr Morrison, at least part of the security for that debt was released in October 2007.
[14] Exhibit GM5 to Mr Morrison’s affidavit sworn 27 January 2011.
[40] In those circumstances, it seems to me that the threat of liquidation would have been a powerful incentive for Heday to pay its debt to GMC. Issuing a statutory demand is a simple and inexpensive process.
[41] Despite this, Mr Morrison chose to take no action on the debt because of his personal friendship with Mr Giddings. That is simply no reason not to take appropriate steps to secure his own financial viability or that of GMC.
[42] I am not satisfied that Mr Morrison took appropriate steps to recover the debt from Heday.
Other matters
[43] While the Global Financial Crisis may have affected Heday, there is no evidence that it had any direct effect on GMC or Mr Morrison. In fact, there is no real evidence to suggest that the Global Financial Crisis affected Heday except Mr Giddings’ constant statements to Mr Morrison to that effect.
[44] Mr Morrison told the tribunal that his credit card debt of $100,000 arose because of a recent break up of a personal relationship. Later, he told the tribunal that the debt accrued because he made several trips to Indonesia for a project sponsored by Robert Ackermann. The project came to nothing. Mr Morrison says he should have asked Mr Ackermann to pay his expenses for that trip but he did not. He doesn’t know why.
[45] Mr Morrison also told the tribunal that he and his former partner owned a house together. They sold that and bought another, this time in his partner’s name only. At the time the relationship broke down, they owed “only about $40,000” on the property. Despite this, Mr Morrison left the relationship with $100,000 debt but with no thought of pursuing any entitlement in the property which might have reduced his debt.
[46] Both Mr Morrison and Mr Giddings said that they did not expect the infrastructure charge. Mr Morrison was vague in his evidence but he did concede that he ran the Heday project as project manager and that he was involved in the planning and certification. If I believe the evidence, then the naivety of these two gentlemen is breathtaking. Most development approvals have conditions imposing infrastructure charges and the amount is ascertainable. The amount should have been factored into the costs of the project by a prudent developer and/or project manager.
[47] Mr Morrison also complains that Citibank did not reduce its interest charges, even though it was offering low interest credit cards to new consumers. Any attempt to come to an accommodation with credit providers was too little, too late.
Conclusion
[48] I am satisfied that Mr Morrison did not take reasonable steps to avoid his bankruptcy; that he did not keep proper books of account or financial records; that he did not seek appropriate financial or legal advice; and that he did not take reasonable steps to recover the debt from Heday. The application should be dismissed and the Authority’s decision affirmed.
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