Hansen v Queensland Building Services Authority - [2013] QCAT 613

CITATION:

Hansen v Queensland Building Services Authority [2013] QCAT 613

PARTIES:	Phillip Anthony Hansen (Applicant)
v
Queensland Building Services Authority (Respondent)

APPLICATION NUMBER:

OCR344 -12

MATTER TYPE:

Occupational regulation matters

HEARING DATE:

24 October 2013

HEARD AT:

Brisbane

DECISION OF:

Member Gardiner

DELIVERED ON:

6 November 2013

DELIVERED AT:

Brisbane

ORDERS MADE:

1. The decision of the Authority dated 31 August 2012 refusing to categorise Mr Hansen as a permitted individual in relation to the event the liquidation of City Landscape Supplies Pty Ltd is confirmed.

CATCHWORDS:

PERMITTED INDIVIDUAL – Where the applicant director of a landscaping supply company as adjunct to his main business – Where previous business had been successful – Where new business started in now location with some equipment from previous business – Where company undercapitalised – Where Brisbane floods interrupted business – Where company unable to pay its tax – Where director relied largely on previous business experience with little outside professional advice

Queensland Building Services Authority Act 1991 ss 56AC, 56AD, 58

Younan v QBSA [2010] QDC 158 followed

APPEARANCES and REPRESENTATION (if any):

APPLICANT:

Mr Hansen appeared in person

RESPONDENT:

Ms S Van Eyk Solicitor represented the QBSA

REASONS FOR DECISION

On 31 August 2012, the Queensland Building Services Authority refused an application by Mr Phillip Hansen to be categorised as a permitted individual under s 56 AD(1) of the Queensland Building Services Authority Act 1991 (QBSA Act).
Mr Hansen is a licensed builder, holding an open license. Mr Hansen was also a director of City Landscape Supplies Pty Ltd.
On 29 February 2012, liquidators were appointed for City Landscape Supplies Pty Ltd. The company had outstanding debts of $40,850 to the Australian Taxation Office[1].
[1] Copy of Tax Agent Portal for company 3 June 2011 to 29 February 2012.
Under the current Queensland licensing system for builders, if a builder is a director or influential person in a company that has become insolvent, the builder is an excluded individual and the building license is cancelled for 5 years[2].
[2] QBSA Act s 56AC.
However an excluded builder can apply to be a permitted individual allowing him to retain his building license if the builder can satisfy the Authority that he took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event, here the liquidation of City Landscape Supplies[3].
[3] Ibid s 56AD.
The QBSA Act also sets out the matters the Authority (and therefore this Tribunal) must have regard to when examining any action by the excluded builder to show that he took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the two relevant events in this matter[4]. The Authority is also able to have regard to other matters when deciding if a builder took all reasonable steps[5].
[4] Ibid s 56AD(8A).
[5] Ibid s56AD(8B).
The leading decision of Judge McGill in Younan v QBSA[6] identifies a four step process when determining a permitted individual. These steps are:
a)    identify the relevant event;
b)    identify the circumstances the resulted in the happening of the relevant event;
c)    determine if the applicant took all reasonable steps to avoid the coming into existence of those circumstances; and
d)    if the threshold test is satisfied, should discretion be exercised to classify the applicant as a permitted individual.
[6] [2010] QDC 158.
His Honour then goes on to say
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 form arising, or whether they might 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 benefit of hindsight [7] .
[7] Younan v QBSA at [26].
The event in this case is the company liquidation on 29 February 2012 (step one).
The QBSA concedes that if the threshold test is satisfied, the discretion should be exercised to classify Mr Schulz as a permitted individual (step four).
Steps two and three – to identify the circumstances that resulted in the happening of the event and to determine of Mr Hansen took all reasonable steps to avoid those circumstances are the subject of these reasons.
The liquidation of City Landscape Supplies
City Landscape Supplies was set up (as was Mr Hansen’s previous landscape supply business) to cut out the middleman in his chain of supply to his other profitable landscaping business, “Designer Image Gardens and Water Features”, part of the Hansen Group of companies.
Mr Hansen says the main reasons the company experienced financial difficulties were: the effect of the December 2010 floods in Brisbane and the economic financial crisis that affected the landscaping industry heavily (he says he became aware of this in November 2011). These factors produced the liabilities that arose because of guarantees he had entered into through the company.
Mr Hansen says he took advice on credit management, that there was an agreement with a former business for that company to contribute creditors of that business to support City Landscape Supplies and that he contributed $42,000 of his own funds by way of loan to City Landscape Supplies. This was made up of $10,000 initial bond and a further $30,000 capital injection in the second quarter of 2011, when it was clear the company was not reaching its projected targets.
Mr Hansen also provided plant and equipment to the value of nearly $90,000 as well as transportation assistance at the setup of the business from his previous business, Kelvin Grove Landscape Supplies. In April 2011, he arranged for the Hansen Group to divert landscaping supply purchases to City Landscape Supplies which were often prepaid and assisted cash flow. Mr Hansen continued supporting City Landscape Supplies by making it the preferred purchaser for landscape supplies from his other company the Hansen Group which ran the profitable landscaping business. The Hansen Group often also collected the supplies at no cost the City Landscape Supplies and undertook deliveries for City Landscape Supplies at no cost. Book-keeping was also supplied at no charge by the Hansen Group.
Mr Hansen says he negotiated with all creditors who hold personal guarantees. He further says he provided MYOB statements to show the company kept proper books and financial records and that company maintained daily, weekly fortnightly and monthly reports. Mr Hansen did not work in the company business daily. His partner and co-director, Samuel Huismann was the business’s operations manager. However Mr Hansen says he was in contact with Mr Huismann on a daily basis and received weekly and monthly financial reports.
Mr Hansen says he took financial and legal advice in relation to the establishment of the lease of the premises for the business. In September 2011 he sought advice from this external accountant when it became clear that City Landscape Supplies would be unable to pay any of the tax owing to the ATO for the third quarter in a row.
The accountants negotiated a payment plan with the ATO for the outstanding amount of back tax but this amount was only to cover the back tax and did not account for the tax that was accruing in the then fourth quarter and going forward.
In February 2012, when Mr Hansen realised the company was not going to be able to continue in business, he sought advice from an insolvency practitioner and external accountant prior to the relevant event occurring but fails to show any direct evidence either financial or legal advice sought prior to this point. Mr Hansen says he relied on his previous business experience in particular in the landscaping industry; to inform his actions in this business and continued to believe, although there were serious financial problems, the business would pull through in the end.
Mr Hansen says the non payment of debtors is not a factor as the majority of debtors were current – within 30 days and accepted trade terms. Debts to State and Commonwealth taxes are due to the downturn in the industry and are overstated. Recovery by the ATO is not a factor as the ATO had not commenced recovery action at the time of the relevant event. Mr Hansen says the ATO had given concessions to flood victims to pay their outstanding tax and so the company was not in default.

Mr Hansen further says the directors of City Landscape Supplies were aware of their obligations to taxes and had discussions with the external accountants. Mr Hansen provides further external evidence of the downturn in the landscaping industry in the 2012 year, including reference to other companies that had administrators appointed in the same industry.
Mr Hansen finally says that the business was not undercapitalised as suggested by the Authority. He says the financial position was reviewed frequently, the initial capital was provided by loans from the two directors and customer lists were brought in. This was not a start-up company and significantly less capital was required. Mr Hansen says he drew on his business experience since 2004 to assess the level of capital required.
The Authority submits that a number of sub-sections of section 56AD have not been satisfied by Mr Hansen in three broad areas. They are: that there was a lack of capital for City Landscape Supplies since its registration; that Mr Hansen did not take external professional advice; and that there was no adequate provision for ATO debt that had accrued or that was accruing going forward.
In particular, the Authority says that this Tribunal cannot be satisfied that Mr Hansen took reasonable steps to avoid the company going into liquidation because Mr Hansen has provided limited copies of the company’s financial documents and no tax returns. The Authority submits that all accounts were done in-house and often the services of a book-keeper were “gifted” by the Hansen Group. There was no external oversight of accounts and Mr Hansen has failed to provide sufficient evidence of the keeping of proper books[8].
[8] Ibid s 56AD(8A)(a).
The Authority also submits that City Landscape Supplies was undercapitalised and there was insufficient evidence to show that appropriate advice was obtained at the start-up, other than Mr Huismann’s evidence that advice was taken on the lease[9].
[9] Ibid s 56AD(8A)(b).
The Authority also submits that there were no tax returns provided in evidence, that no tax was paid by the company until an negotiated arrangement was put in place and that even then (as shown by a copy of the company’s tax portal) this was insufficient to cover the tax owed as the debt was mounting with no provision for the tax that was continuing to accrue[10].
[10] Ibid s 56AD(8A)(f).
Mr Hansen in oral evidence at the hearing explained that he relied on his previous experience in landscaping supply businesses to make the decisions about City Landscape Supplies. Mr Hansen explained that he alone had the capacity to provide capital for the business other than the $10,000 provided by Mr Huismann at the start to pay the bond.
Mr Hansen said he decided in February 2102 that he could no longer subsidize the business and that the location for the business had been a poor choice. Mr Hansen said he always believed the business would turn around even in light of monthly figures for many months prior to this showing figures either just under or just over break-even or that were substantially in debt.
Looking at the circumstances of that period now, I cannot be satisfied that this was a reasonable belief. The figures showed a different story and any external adviser would have raised the alarms a lot earlier than Mr Hansen did. The past debt to the ATO was not being covered by the repayments and, as trading continued, the current and future debt had no provision made for it in the accounts.
It seems to me that this company was a “slow train wreck” from mid 2011, unrecognised by Mr Hansen. Had Mr Hansen taken some external advice on the state of the accounts, I am satisfied that this would have been pointed out to him.
On the basis of the steps Mr Hansen did not take until February 2012 and the mounting ATO debt for which no provision was made by the company, I cannot be satisfied that Mr Hansen as director took all reasonable steps to avoid the coming into existence of the circumstances which led to the ultimate liquidation of City Landscape Supplies.
For these reasons, Mr Hansen’s application concerning this event must fail. The decision of the Authority dated 31 August 2012 refusing to categorise Mr Hansen as a permitted individual in relation to the liquidation of City Landscape Supplies Pty Ltd is confirmed.