Halal Restaurant Supplies Pty Ltd (Migration)

[2019] AATA 4501

Halal Restaurant Supplies Pty Ltd (Migration) [2019] AATA 4501 (20 September 2019)

DECISION RECORD

DIVISION:Migration & Refugee Division

APPLICANT:  Halal Restaurant Supplies Pty Ltd

CASE NUMBER:  1724572

DIBP REFERENCE(S):  BCC2016/3665070

MEMBERS:Bridget Cullen (Presiding)

Peter Ranson

DATE:20 September 2019

PLACE OF DECISION:  Brisbane

DECISION:The Tribunal affirms the decision under review to refuse the nomination.

Statement made on 20 September 2019 at 11:52am

CATCHWORDS
MIGRATION – Employer Nomination – approval of nominated position – Temporary Residence Transition nomination stream – Café or Restaurant Manager – financial capacity to maintain nominee’s future employment – significant losses in the past – discretionary fee arrangements – callable loan from the director – decision under review affirmed

LEGISLATION
Migration Regulations 1994 (Cth), r 5.19

STATEMENT OF DECISION AND REASONS

APPLICATION FOR REVIEW

1. This is an application for review of a decision made by a delegate of the Minister for Immigration on 22 September 2017 to reject the applicant’s application for approval of the nomination of a position in Australia under r.5.19 of the Migration Regulations 1994 (the Regulations).

2. The applicant applied for approval on 3 November 2016. The requirements for the approval of the nomination of a position in Australia are found in r.5.19 of the Regulations which contains two alternative streams: a Temporary Residence Transition nomination (r.5.19(3)) stream and a Direct Entry nomination (r.5.19(4)) stream. If the application is made in accordance with r.5.19(2) and meets the requirements of either stream, then the application must be approved. If any of the requirements are not met then the application must be refused: r.5.19(5).

3. In this case, the applicant has applied for approval of a nomination, seeking to satisfy the criteria in the Temporary Residence Transition nomination stream.

4. The delegate refused the application on the basis the applicant’s nomination did not satisfy r.5.19(3)(d)(i) of the Regulations because the delegate, based on the evidence before them, found the applicant failed to demonstrate financial capacity to offer full time employment for at least 2 years to the nominated position.

5. The applicant, by way of Mr Smit Shah, the applicant’s Operations Manager, appeared before the Tribunal on 3 July 2019 to give evidence and present arguments. The Tribunal also received oral evidence from Mr Sath Prasad Priyadarshana Wijayalath Pathirannahalage, the nominee.

6. The hearing was conducted jointly, together with the related review of the visa refusal of the nominee, Mr Sath Prasad Priyadarshana Wijayalath Pathirannahalage.

7. The applicant was represented in relation to the review by its registered migration agent.

8. For the following reasons, the Tribunal has decided to affirm the decision under review to refuse the nomination.

   CONSIDERATION OF CLAIMS AND EVIDENCE

9. The issue in this case is whether the applicant meets the requirements for approval of the nomination under the Temporary Residence Transition nomination stream set out in r.5.19(3), which is extracted in the attachment to this decision. For the nomination to be approved, all the requirements must be met.

   Future employment of the visa holder: r.5.19(3)(d)

10. Regulation 5.19(3)(d) only applies to certain nominees (those described in r.5.19(3)(c)(i)). For this class of person, the regulations require that the nominee will be employed on a full time basis for at least 2 years on terms that do not expressly preclude the possibility of an extension.

11. The Applicant lodged an application with the Department on 3 November 2016, nominating the position of Café or Restaurant Manager – ANZSCO 141111. The application identified Mr Sath Prasad Priyadarshana Wijayalath Pathirannahalage as the nominee, to work at the Sitar Street Kitchen, located at 333 Sandgate Road, Albion, Queensland.

12. The Department delegate, in refusing the nomination, primarily relied on the substantial losses during the 2014-2015 (accumulated loss of $310,969) and 2015-2016 (accumulated loss of $439,610) financial years. The delegate, as a result, had great concerns regarding the business’ capacity to meet all employment obligations relating to the continued employment of the proposed nominee for a period of at least 2 years; further evidenced by a lack of documents or information explaining how the business intended to turnover sufficient funds to meet those obligations.

13. The Tribunal, whilst differently Constituted, on 11 October 2018, wrote to the applicant, under s.359(2) of the Act, inviting it to provide updated and current information supporting the application, and addressing the criteria in r.5.19.

14. On 26 October 2018, the Tribunal received a response, by way of nine emails, through the applicant’s registered migration agent, containing the following:

    -Submissions;

    -ASIC Details;

    -‘Business Financial Evidence’ (including Letter of Support from McNamara Accounts, BAS, Profit Loss Statements and Tax Returns);

    -Business Organisation Chart;

    -Evidence of Performance of Duties;

    -Market Salary Research;

    -Contract;

    -Employment Bank Statements;

    -Payslips; and

    -Evidence of ongoing training

15. The Tribunal received a further response on 13 November 2018, which included photos of the restaurant and a letter from the employer, dated 2 November 2018.

16. On 9 May 2019, the Tribunal received further submissions and documents from the Applicant.  The Applicant explains that:

    “The losses sustained by the business in 2015 was a result of operational inefficiencies in the “Sitar Central Kitchen” located at 33 Anstey Street, and the down turn in the mining sector in regional Queensland which resulted in various outlets no longer being viable and incurring large losses. This information is confirmed by the company accountant who has addressed this costly year for the business. The heavy losses in 2015 were remedied in the 2016 financial year with the relocation of the Central Kitchen from its old premises to its current premise within their existing flagship store.”

17. The Applicant asserts that it “has the financial viability to remain actively operating in Australia, showing strong growth and financial health and therefore is able to employ the nominee in the position for at least 2 years”.

18. At the hearing, Mr Shah confirmed that the Applicant now has three restaurants – (1) Sitar Emerald; (2) Rick’s Rooftop Bar and Kitchen; and (3) Sitar Street Kitchen.  Prior to 2017, the Applicant had up to 17 franchise restaurants, some of which were closed that year.  The Applicant was not sure of the actual numbers of closures, or whether there were written franchise agreements in place and undertook to obtain them for the Tribunal if they existed.

19. The Tribunal noted that the sales for the 2017 and 2018 financial years for the Applicant were reasonably consistent, in the order of $950,000 per annum, excluding GST.  However, the Tribunal further noted that the gross profit from trading had fluctuated substantially between the 2017 and 2018 financial years.  The gross profit margin was 40% for the 2017 financial year, whereas the 2018 financial year the gross profit margin had fallen to 28%.

20. The Tribunal noted that in both the 2017 and 2018 financial years the company had derived non-trading income described as “Administration Fees” (the Administration Fees).  The amounts reported in the financial statements were $140,705 for 2017 and $159,523 for 2018.  The Tribunal asked the Applicant to explain the nature of the Administration Fees and their significance to the Applicant’s business.

21. The Applicant explained that the Administration Fees were charged to, and paid for, by external restaurants in four locations – (1) Ashgrove; (2) Coorparoo; (3) Kenmore; and (4) Albion.  The Applicant further explained that the Administration Fees were paid by these restaurants in order for them to gain access to pre-prepared food supplied from the wholesale kitchen at Albion. 

22. The Tribunal notes that the Applicant incurred substantial losses prior to the 2017 financial year, which Mr Shah attributed due the Applicant having expanded rapidly, beyond the capacity of its working capital.  As a result, the losses brought forward to the 2017 year were $439,610.

23. The Tribunal noted that in the 2017 and 2018 financial years, the financial statements provided by the Applicant showed that it had no cash available.  Further, there was no amount shown for “plant and equipment” at either the 2017 or 2018 balance date.  The Tribunal queried this, as it seemed unusual given that the Applicant is a retail business with a wholesale kitchen, which presumably would be fitted out with the necessary plant and equipment.  The Applicant was unable to explain why there was no cash or plant and equipment shown on the balance sheets.

24. The Tribunal then noted that the Applicant’s borrowings, shown as current liabilities on the balance sheets provided, decreased from $65,638 in 2017 to $59,836 in 2018.  Further, the borrowings shown as non-current liabilities had decreased from $324,297 in 2017 to $230,676 in 2018.  The Applicant was unable to explain how the business could afford to reduce these liabilities at a time when there was no cash other assets in the business.

25. The Tribunal was advised that the Applicant’s Director, Mr Hosen (who did not appear at the hearing, but authorised Mr Shah to appear), had advanced $363,375 to the company on the basis that he would not withdraw or call in the loan.  This was stated to be an injection of funds to assist with re-establishing the business following the closure of the 17 franchised restaurants.  The Applicant was unable to identify whether this Director’s loan was the same as the Applicant’s borrowings reflected on the balance sheet.  However, as the borrowings are not recorded as secured, the Tribunal noted that there was nothing to prevent the holder of that loan, Mr Hosen, from calling in the loan at any time. 

26. At the conclusion of the hearing, the Tribunal was left with two general concerns, that had not been answered by the Applicant in either its oral or written evidence.  Broadly, these concerns relate to the Administration Fees charged by the Applicant to the four external restaurants; and to the ability of the Applicant’s Director, Mr Hosen, to call in the balance of the loan he had made to the Applicant at any time. 

27. The Tribunal, adopting the process set out in s.359AA of the Act, raised with the Applicant its concerns that (1) the Applicant was unable to confirm whether there are any written contractual arrangements between it and the four external restaurants in relation to the Administration Fees; and (2) the Applicant was unable to explain the position of the advance from its Director, Mr Hosen, and any connection it has to the amount shown as borrowings on the balance sheet.

28. The Tribunal explained that, in the absence of a contractual arrangement, there was no legal mechanism to prevent the four external restaurants buying elsewhere or requiring payment of the Administration Fees.  The Tribunal noted that the net profit of Halal before income tax was $43,432 for 2017, and $96,467 for 2018.  The Tribunal observed that if the administration fees were reduced, or no longer received, then the business would be operating at a net loss. 

29. The Tribunal explained that, if the Tribunal took the view that the Administration Fees were not legally enforceable, that it might conclude that the applicant could not demonstrate that the nominee will be employed on a full-time basis in the position for at least 2 years, in view of the Tribunal’s assessment of its financial capacity. The Tribunal explained that, if it took this view, it might find that the Applicant did not meet r.5.19(3)(d).

30. Similarly, the Tribunal explained that, if it took the view that the loan by Mr Hosen could be called in at any time, that the Applicant may find itself in a precarious financial position.  The Tribunal explained that, if the Applicant experienced financial distress, there was nothing requiring Mr Hosen to prioritise his personal interests in calling in the loan above those of the Applicant company.

31. The Applicant’s representative undertook to look for any relevant documentation, and to provide to the Tribunal in support of these Administration Fee arrangements. The Tribunal provided the Applicant until 19 July 2019, a period of 16-days following the hearing.  On 19 July 2019, the Applicant requested a further extension of time, which the Tribunal granted, until 24 July 2019. On 24 July 2019, a further request for an extension of time was requested. Again, the Tribunal granted an extension, this time until 2 August 2019. 

    Post-hearing submissions

32. The Applicant has filed further information in the Tribunal, on 6, 7, and 16 August 2019, including submissions from its representative. Although the Applicant has provided some further information about its operations, company structure, and financial operations, the information provided does not allay the Tribunal’s concerns, as explained to the Applicant in the hearing.

33. The applicant provided a copy of a Deed of Debt Forgiveness dated 11 July 2019 (the “Debt Forgiveness Deed”). The parties to the Debt Forgiveness Deed are Mr Hosen (described as the “lendor”), and Halal Restaurant Supplies Pty Ltd (described as the “borrower”). The Debt Forgiveness Deed acknowledges that the borrower is indebted to the lender for the amount of $47,331.41 (the Debt). The lender resolves to forgive the debt on the terms and conditions of the Debt Forgiveness Deed.

34. The Tribunal notes that the amount of this debt was $324,297 as at 30 June 2017, reducing to $230,676 by 30 June 2018. The Tribunal therefore notes that the debt has reduced by a further $183,345 ($230,676 - $47,331 = $183,345) between 30 June 2018 and the execution of the Debt Forgiveness Deed.

35. The Applicant provided a letter from McNamara Accountants Pty Ltd dated 24 October 2018, which states:

    “The director has contributed $363,375 to finance the previous year’s losses. It is not his intention to be repaid this money. Therefore, $363,575 (related party loan) can be excluded from the liabilities of the company in the short to medium term.”

36. The evidence before the Tribunal then is that, notwithstanding the comments made by McNamara Accountants in their letter dated 24 October 2018, the director’s loan was substantially repaid over time until the execution of the Debt Forgiveness Deed, post-hearing. This confirms the Tribunal’s concern that the director’s loan could not be relied upon to support the applicant.

37. In Mr Hosen’s undated submission post-hearing, he states that the reason the company balance sheet shows no assets is that it purchased equipment at next to no consideration, rather than leasing the equipment following the closure of many of the franchised Sitar restaurants in 2016. He further states that the reason there are no cash assets on the balance sheet of the company is that it operates an overdraft facility.

38. Whilst these explanations explain the lack of assets on the balance sheet, they also confirm that the Applicant has no assets - i.e., in the event of closure, the Applicant has nothing to sell to cover its liabilities. This is of great concern to the Tribunal in making an assessment as to whether the company has the financial resources to continue to offer full time employment for at least 2 years to the nominated position.

39. The Tribunal notes that the Applicant’s Balance Sheet provided post-hearing, as at 30 June 2019, shows comparatives as at 30 June to 2018 and 30 June 2017. The Tribunal notes that the Balance Sheets previously provided did not show any amounts of GST payable as at 30 June 2018 or 30 June 2017, whereas the most recent Balance Sheet shows amounts payable of $6,227 and $6,615, respectively.

40. The Tribunal also notes that the Balance Sheet for 30 June 2019 shows in its comparatives that amounts were owing to the Australian Taxation Office, in respect of the integrated client account of the Applicant, in the amounts of $25,604 and $18,820 for the 2018 and 2017 years, respectively. These amounts were not shown in the financial statements previously provided.  These discrepancies lead the Tribunal to the conclusion that the accounting records for the Applicant may not be completely reliable.

41. In support of its assertion that the administration fees received by it are ongoing, and reliable, the Applicant provided copies of license agreements between it, and Albion Queensland Pty Ltd dated 1 December 2011, Monya Pty Ltd dated 21 February 2012, and Tejgon Pty Ltd dated 1 December 2012.

42. These agreements show that those companies are committed to pay monthly licence fees of $1,200, $400 and $1,200 respectively. There is no provision apparent to the Tribunal in these agreements to compel the licensees to pay any additional amounts. The combined monthly licence fees which these three companies are committed to pay to the Applicant in accordance with the licence agreements is $2,800 per month, equating to $33,600 per annum.

43. The Tribunal notes that administration fees received as income by the Applicant for the 2019 financial year were $144,508, which is reasonably consistent with the amounts derived for the 2017 and 2018 financial years. Given that the total amount required to be paid under the licence agreements is $33,600, for the 2019 financial year, that leaves $110,908 as discretionary payments that the Applicant cannot rely upon. As the recorded profit for the 2019 financial year was $137,006, deducting $110,908 as discretionary administration fees from the recorded profit leaves reliable net profit of $26,098.

44. On this basis, the Tribunal considers that the Applicant has not demonstrated that it is a viable, ongoing concern with the ability to meet its financial obligations, including payment of wages, in the future.  The Tribunal notes that the Applicant has provided sales projections for the 2019-2021 period.  The Tribunal considers these aspirational, and does not consider that they demonstrate the Applicant will, in fact, be successful in their business endeavours, particularly in light of its past performance in sustaining significant financial losses.

45. As a result, the Tribunal is not satisfied that the applicant will be able to continue to employ the nominee in the role nominated, for the requisite two-year period.

46. Given the above findings, the requirement in r.5.19(3)(d) is not met.

47. For the above reasons the Tribunal is not satisfied that the applicant meets the requirements of r.5.19(3). The applicant has not sought to satisfy the criteria in Direct Entry nomination stream, and as such has not met the requirements in r.5.19(4). Accordingly, the nomination of the position cannot be approved. Therefore, the Tribunal must affirm the decision under review.

    DECISION

48. The Tribunal affirms the decision under review to refuse the nomination.

    Bridget Cullen
    Member

    
    

    Peter Ranson
    Member

    
    

    ATTACHMENT  -  EXTRACTS FROM THE MIGRATION REGULATIONS 1994

    5.19Approval of nominated positions (employer nomination)

    …

    (2)The application must:

    (a)be made in accordance with approved form 1395…; and

    (aa) include a written certification by the nominator stating whether or not the nominator has engaged in conduct, in relation to the nomination, that constitutes a contravention of subsection 245AR(1) of the Act; and

    (b)be accompanied by the fee mentioned in regulation 5.37.

    Temporary Residence Transition nomination

    (3)The Minister must, in writing, approve a nomination if:

    (a)the application for approval:

    (i)       is made in accordance with subregulation (2); and

    (ii)      identifies a person who holds a Subclass 457 … visa granted on the basis that the person satisfied the criterion in subclause 457.223(4) of Schedule 2; and

    (iii)     identifies an occupation, in relation to the position, that:

    (A)is listed in ANZSCO; and

    (B)has the same 4-digit occupation unit group code as the occupation carried  out by the holder of the Subclass 457 … visa; and

    (b)the nominator:

    (i)       is, or was, the standard business sponsor who last identified the holder of the Subclass 457 … visa in a nomination made under section 140GB of the Act or under regulation 1.20G or 1.20GA as in force immediately before 14 September 2009; and

    (ii)      is actively and lawfully operating a business in Australia; and

    (iii)     did not, as that standard business sponsor, meet regulation 1.20DA, or paragraph 2.59(h) or 2.68(i), in the most recent approval as a standard business sponsor; and

    (c)either:

    (i)       both of the following apply:

    (A)in the period of 3 years immediately before the nominator made the application, the holder of the Subclass 457 …visa identified in subparagraph (a) (ii) has:         

    (I)held one or more Subclass 457 visas for a total period of at least 2 years; and

    (II)been employed in the position in respect of which the person holds the Subclass 457 … visa for a total period of at least 2 years (not including any period of unpaid leave);

    (B)the employment in the position has been full-time, and undertaken in Australia; or

    (ii)      all of the following apply:

    (A)the person holds the Subclass 457 … visa on the basis that the person was identified in a nomination of an occupation mentioned in sub-subparagraph 2.72(10)(d)(iii)(B) or sub-subparagraph 2.72(10)(e)(iii)(B);

    (B)the nominator nominated the occupation;

    (C)the person has been employed, in the occupation in respect of which the person holds the Subclass 457 … visa, for a total period of at least 2 years in the period of 3 years immediately before the nominator made the application; and

    (d)for a person to whom subparagraph (c)(i) applies:

    (i)       the person will be employed on a full-time basis in the position for at least 2 years; and

    (ii)      the terms and conditions of the person’s employment will not include an express exclusion of the possibility of extending the period of employment; and

    (e)the terms and conditions of employment applicable to the position will be no less favourable than the terms and conditions that:

    (i)are provided; or

    (ii)would be provided;

    to an Australian citizen or an Australian permanent resident for performing equivalent work in the same workplace at the same location; and

    (f)either:

    (i)       the nominator:

    (A)fulfilled any commitments the nominator made relating to meeting the nominator’s training requirements during the period of the nominator’s most recent approval as a standard business sponsor; and

    (B)complied with the applicable obligations under Division 2.19 relating to the nominator’s training requirements during the period of the nominator’s most recent approval as a standard business sponsor; or

    (ii)      it is reasonable to disregard subparagraph (i); and

    Note Different training requirements apply depending on whether the application for approval as a standard business sponsor was made before 14 September 2009 or on or after that date.

    (g)either:

    (i)       there is no adverse information known to Immigration about the nominator or a person associated with the nominator; or

    (ii)      it is reasonable to disregard any adverse information known to Immigration about the nominator or a person associated with the nominator; and

    (h)the nominator has a satisfactory record of compliance with the laws of the Commonwealth, and of each State or Territory in which the applicant operates a business and employs employees in the business, relating to workplace relations.