Jones v Queensland Building Services Authority
[2011] QCAT 202
•20 May 2011
| CITATION: | Jones v Queensland Building Services Authority [2011] QCAT 202 |
| PARTIES: | Gaden Jones |
| v | |
| Queensland Building Services Authority |
| APPLICATION NUMBER: | GAR185-10 |
| MATTER TYPE: | General administrative review matters |
| HEARING DATE: | 18 April 2011 |
| HEARD AT: | Brisbane |
| DECISION OF: | Ann Fitzpatrick, Member |
| DELIVERED ON: | 20 May 2011 |
| DELIVERED AT: | Brisbane |
ORDERS MADE: | [1] The decision of the Queensland Building Services Authority to refuse to categorise the applicant as a permitted individual be confirmed. [2] Each party bear their own costs of the proceeding. |
| CATCHWORDS: | Permitted individual – whether applicant took all reasonable steps to avoid coming into existence of the circumstances relating to the relevant event Queensland Building Services Authority Act 1991, s 56AD |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Gaden Jones represented by Glendon Young of Winchester Young Maddern |
| RESPONDENT: | Queensland Building Services Authority represented by Ms Jodie Stroud |
REASONS FOR DECISION
Introduction
This was an application to review a decision of the Queensland Building Services Authority (QBSA) to refuse to categorise the applicant as a Permitted Individual for a “relevant event” within the meaning of section 56AD of the Queensland Building Services Authority Act 1991 (QBSA Act).
The application is made pursuant to section 86(1)(j) and section 87 of the QBSA Act and relies on the powers of this Tribunal pursuant to section 24(1)(c) of the Queensland Civil and Administrative Tribunal Act 2009 (the QCAT Act) to set aside the decision and substitute its own decision that the applicant be categorised as a Permitted Individual. The applicant also seeks his costs of the application.
Under section 20 of the QCAT Act the Tribunal must hear and decide a review of a reviewable decision by way of a fresh hearing on the merits. This Tribunal must be satisfied on the material before it that the test in section 56AD(8) of the QBSA Act is satisfied before it sets aside the QBSA’s decision and substitutes its own.
The evidence
At the hearing of this application, the Tribunal heard evidence from the applicant, and from Miss Jenny Smith, Chartered Accountant for the applicant and Ms Natasha Dennis, Senior Compliance Officer for the QBSA.
The following material was tendered:
a) Statement of Gaden Jones, dated 10 September, 2010;
b) Statement of Gaden Jones, dated 11 March, 2011;
c) Application, dated 9 June, 2010;
d) Statement of Jennifer Smith, undated, filed 18 March, 2011;
e) Statement of Natasha Dennis, dated 16 August, 2010;
f) Statement of Natasha Dennis, dated 26 September, 2010;
g) Statement of Natasha Dennis, dated 5 April, 2011; and
h) Worrells Advice to Creditors, dated 7 April, 2011.
The Tribunal also has the benefit of written submissions from both parties.
Background
The evidence reveals and I accept that:
a) The applicant is the holder of a Trade Contractors Licence for Plumbing. He has been engaged in his trade since 1991.
b) On 30 May, 2001 Fraden Plumbing Pty Ltd was incorporated. The applicant was at all times a Director and Secretary of Fraden Plumbing Pty Ltd (the company).
c) The company traded at a profit from 2002 to 2008. The figures reveal a loss in 2006, which is explained as a timing error from a data entry perspective. A loss of $331,169 is recorded for the 2009 financial year.
d) On 15 March, 2010, Michael John Griffin and Morgan Gerard Lane of Worrells were appointed as Liquidators of the Company.
e) Worrell’s advice to creditors list proofs of debt received in an amount of $507,555.11. The applicant gave evidence that the debts of the company were in fact in the order of $660,000. The list of proofs of debt refers to trade creditors and an amount claimed by the Australian Taxation Office of $34,555.78, which is said by the applicant to be GST and PAYG withholding debts from 6 August 2009. There is also a debt to the Department of Education, Employment and Workplace Relations in the sum of $19,353.33 for employee entitlements.
The Law
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 the individual took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event.”
Section 56(8A) sets out matters to which the QBSA 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 the 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 fro recovery of the amounts;
(f) Making appropriate provision for Commonwealth and State taxation debts.”
[10] Section 56(8B) 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.”
[11] In Younan v QBSA[1], recently upheld by the Queensland Court of Appeal,[2] His Honour Judge McGill made the following points as to how the indicia in section 56AD(8A) should be interpreted:
He said at paragraph (24):
“It is immediately apparent that these are all concerned with the prudent management of the company as an ongoing business, or even, in the case of (b) something which is to be done before one conducts a business arrangement. In other words, the focus of this subsection is on prevention rather than dealing with problems after they have arisen, except in the case of (c) which is obviously concerned with a situation where a problem has arisen outside the control of the individual in question.”
[1] (2010) QDC 158.
[2] Younan v Queensland Building Services Authority (2011) QCA 1.
[12] At (26):
“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 the individual as a permitted individual.”
[13] 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.”
[14] At (37):
“...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 say on the basis of the case made by the applicant, so that if 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.”
The event
[15] Both parties are agreed that the relevant event for the purposes of sections 56AC(2) and 56AD(1) of the QBSA Act was the voluntary appointment of the liquidators. The company was unable to meet its debts from income or sale of assets.
Circumstances giving rise to the event
[16] The parties agree and I find that the key circumstance which gave rise to the liquidation of the company was financial loss sustained on a contract for the performance of work on the construction of an aged care facility at Ferny Grove.
[17] The financial loss was principally caused by issuing a quotation for the work which contained two typographical errors resulting in an under quotation of some $230,000.00, including GST. That quotation was accepted.
[18] The errors occurred in the prices entered for fit-off and stormwater in the Quick Books programme used to generate the quotation.
[19] The job ran over by approximately 3 months because of wet weather. That added to the company’s costs in holding labour.
[20] The applicant gave evidence that the loss to the company arising from the Ferny Grove job amounted to $274,000.00, comprising:
(a) $230,000.00 under quoting;
(b) $12,000.00 for the replacement of fire collars;
(c) $7,0000.00 for damage to an oven; and
(d) $25,0000.00 extra sub-contractors costs.
[21] The applicant also gave evidence, and I find, that other circumstances combined with the financial loss on the Ferny Grove contract led to the event. These circumstances included:
(a) a slowdown in work as a result of the global financial crisis dating from September 2008;
(b) diagnosis of depression in September 2008 which condition meant the applicant’s ability to focus on the business was compromised;
(c) separation from his wife in September 2009;
(d) the loss of $20,000.00 worth of materials through theft which occurred on 13 October 2009; and
(e) the loss of $41,272.00 on a contract for the Volgren Buzz Build Project in approximately October 2009 as a result of underpricing tap ware.
[22] Additionally, the applicant agreed with counsel for the respondent in cross examination, and I find, that carrying too high overheads, such as the cost of a boat owned by the company contributed to the event. The boat was purchased in 2008 at a cost of $145,000.00 and incurred expenses of $150,000.00 over 2 years. The boat was sold approximately 3 months ago for $80,000.00.
[23] The respondent submitted that the circumstances which resulted in the event were:
(a) under-pricing by the company;
(b) lack of sufficient working capital;
(c) unnecessary overheads; and
(d) poor business management.
[24] The applicant agreed to each of these propositions, except in relation to poor business management. I will deal with poor business management later in this decision, however, I otherwise find that the circumstances as put by the respondent were circumstances which resulted in the event.
Steps taken by the applicant to avoid the circumstances coming into existence which resulted in the event.
[25] The applicant gave evidence that he knew there was a financial problem at the fit off stage of the Ferny Grove job, in approximately December 2008, when he went to order materials. He said that he did not realize there had been a mistake in the quotation until approximately September 2009. However he was experiencing cash flow problems as at December 2008 which made him realize there was a major problem with the income from the Ferny Grove job.
[26] The applicant’s evidence is that he took the following steps to avoid the circumstances coming into existence which resulted in the event:
(a) Consistent with the applicant’s plan to expand the company’s business, he undertook a business course to improve his skills. He did not complete the course however. After winning his first large job, being the Ferny Grove job, he increased his credit limit with his supplier, Reece, and increased his overdraft.
(b) 7 February 2008 – listing the company’s boat for sale with Peter Hansen Yacht brokers after receiving accounting advice that it was an inappropriate asset for the company.
(c) September 2008 – seeking help for his depression. The applicant admitted in evidence that he had left it too long to seek help for the problem. After seeking help he cut down on alcohol and increased his fitness, spent more time with his children and used his willpower to lift his thoughts.
(d) 17 September 2008 – some 6 months after the Ferny Grove job commenced the company’s overdraft was increased from $50,000.00 to $75,000.00 to meet additional expenses which arose at the rough in stage.
(e) November 2008 – increase in advertising in Yellow Pages from $3,310.00 as at 30 June 2008 to $30,155.00 as at 30 June 2009, in an attempt to win more business.
(f) Late 2008 purchase of drain cleaning machine in a bid to win more maintenance work.
(g) 13 January 2009 – telephone call to Alliance Business Partners advising of cash flow problems and requesting assistance with a budget for the next 6 months. A preliminary budget was prepared. Ms Smith, chartered accountant gave evidence that the budget was based on known overheads to determine what income was needed to break even. The extent of the loss on the Ferny Grove job was not known and not factored into the budget.
(h) 27 February 2009 – subcontractor terminated because of insufficient work.
(i) 27 February 2009 – the applicant’s wife raised the question of tax payments with Alliance. Tax payment plan for the applicant or his wife personally was discussed. There does not appear to have been any discussion of the company’s tax liabilities at this stage.
(j) 17 June 2009 – increase in overdraft from $75,000.00 to $105,000.00.
(k) 16 July 2009 – the applicant refinanced his home loan with Adelaide Bank Limited in an amount of $142,566.00, repaid the Westpac loan of $105,000.00 and paid the balance into the company account.
(l) 17 July 2009 – telephone call from the applicant to Ms Smith in relation to cash flow problems. Agreement to review the data file to work out where things have gone wrong. There is no evidence that any plan resulting from the review was implemented at that time.
(m) 6 August 2009 – further discussion in relation to cash flow issues between the applicant and Ms Smith.
(n) 13 August 2009 – discussion between the applicant and Ms Smith agreeing to meet the next day to review the matter with a view to later contacting creditors with a proposal for payment of debts.
(o) Ms Smith’s evidence was that the applicant was successful in negotiating payment terms with his major suppliers in the short term to see him through a difficult period. The agreed strategy was to attempt to trade out of the company’s financial difficulties.
(p) The company continued to trade and conducted some profitable jobs.
(q) 1 September 2009 – the applicant had a telephone discussion with Ms Smith and updated her on the financial position, saying “everything seems to be going according to plan”.
(r) 16 September 2009 – the applicant telephoned Ms Smith to advise that he and his wife were to divorce and that he would need a new bookkeeper.
(s) 5 October 2009 – $10,000.00 borrowed from the applicant’s father and deposited in the company’s account.
(t) 10 November 2009 – $10,000.00 borrowed from the applicant’s father and deposited in the company’s account.
(u) 30 November 2009 – the applicant paid $57,000.00 of his own funds from the earlier sale of a house into the company account.
(v) 1 December 2009 – the applicant obtained a personal loan of $57,000.00 from Westpac and paid that into the company account.
(w) Ms Smith’s evidence was that approximately $183,000.00 was injected into the Company by the applicant since June 2009, to assist the Company in the payment of its creditors.
(x) 22 December 2010 – the applicant took a call from Ms Smith when she raised concern about the company being able to meet BSA requirements. Ms Smith agreed to analyse work in progress and to look at company loans.
(y) January 2010 – the company engaged the services of Better Business Institute to help advertise the company’s business.
(z) 25 February 2010 – the applicant contacted Ms Smith to advise he will be lent some money by a friend to meet debt.
(aa) 5 March 2010 – meeting between the applicant and Ms Smith in relation to financial affairs of the company, noting the extent of its debts, one plumber let go last month and planned sale of a ute.
(bb) 11 March 2010 – advice by the applicant to Alliance that he was considering bankruptcy.
Section 56(8A) QBSA Act
[27] The QBSA and now the Tribunal must have regard to the matters set out in section 56(8A) in order to address the reasonableness of the steps taken by the applicant.
(a) Keeping proper books of account and financial records
I accept the respondent’s submission that although the company complied with its obligations to keep financial records under the Corporations Act 2001, it did not have “adequate trading budgets and cash budgets; regular internal management accounts; quarterly financial statements; or a dedicated internal accountant” as stated by the liquidator, in its letter dated 21 January, 2011 (Exhibit GJ3 to the affidavit of the applicant dated 11 March, 2011). I find that the keeping and regular use of such financial tools would have helped the applicant avoid the circumstances that resulted in the event. He would have been alerted a good deal sooner to the loss on the Ferny Grove job and could have made more informed decisions as to remedial action and sought more helpful advice in managing the business. I note the applicant’s admission in cross examination that he did not know the true financial position of the company at the relevant times.
(b) Seeking appropriate financial or legal advice before entering into financial or business arrangements or conducting business.
I find that the extent of the financial advice taken by the applicant on behalf of the company was inadequate in the circumstances. I note the admission of the applicant that it was not reasonable to have only 2 meetings with Ms Smith, many months apart. His evidence was that he did not take advice as to how he should prudently manage the company before embarking on an expansion into larger jobs. If he had done so, he could have been advised as to the prudence of utilizing trading budgets and internal management accounts. The advice sought by the applicant occurred many months after problems with cash flow first appeared and were in response to an immediate crisis.
(c) Making appropriate provision for Commonwealth and State taxation debts
I find that the company did not make appropriate provision for Commonwealth and State taxation debts. The company allowed GST and PAYG withholding debts of $34,555.78 to accrue from August 2009 until the liquidation in March 2010. The applicant agreed in cross examination that he had not made appropriate provision for the company’s tax debt.
[28] The other matters set out in section 56(8A) are either not relevant or not significant in this case.
Other criticisms of the steps taken by the applicant to prevent the event occurring
[29] The evidence was that the applicant did not double check the quote before submitting it on the Ferny Grove job and had no system for checking quotes. Likewise there was no system which might have picked up the mistake on the Trade Coast job. The applicant admitted in cross examination that if he had a checking system he would have picked up the mistake which was a key factor in the event.
[30] The applicant admitted that although he had arranged extra funding, he did not have funding to cover unforeseen risks.
[31] Although the applicant knew there was a significant problem and losses on the Ferny Grove job as at December 2008, the applicant did not arrange a meeting with Ms Smith of Alliance in relation to the company’s financial problems until August 2009, some 8 months later. The applicant could provide no explanation for this delay, other than that he was arranging for loans to cover the loss.
[32] The applicant admitted in cross examination that it would have been reasonable to have more than 1 to 2 meetings with Ms Smith, some 3 to 6 months apart.
[33] The applicant admitted that he did not seek advice in relation to the prudence of the company purchasing a boat or in relation to the purchase of motor vehicles. He admitted that the company could not afford to pay for significantly increased advertising when it was carrying overheads for cars and the boat and that it was unreasonable not to check with his accountant before incurring the cost.
[34] The applicant said in evidence that because of his depression he was only able to work 3 to 4 days a week. He sought help after September 2008, but admitted that he left it too late to seek help.
[35] Further the applicant admitted in cross examination that he had not fully considered the issues associated with bigger work. He said that he had no actual budget for the job and was not monitoring profit and loss. He agreed that if he had been monitoring profit and loss he would have picked up the amount of the loss at the stormwater stage. In re-examination the applicant said that he did not monitor the Ferny Grove job any differently to the smaller jobs he did in the past, but after the Ferny Grove job he started to do that.
[36] In response to an assertion by the respondent that it is difficult to fix a problem if you don’t know how much the company has lost, the applicant agreed that he was not properly aware of the true financial position of the company. In re examination he said that if he had known the true position earlier he might have “thrown it in sooner”.
[37] I find that the applicant took no reasonable steps to prevent or deal with the circumstances so that the event of liquidation of the company could be avoided. I find that the steps he did take were inadequate and based upon ignorance of the true state of the finances of the company which ignorance could have been avoided by taking proper financial advice earlier. I find that poor business management was a contributing circumstance to the occurrence of the event.
Conclusion
[38] The evidence of Ms Smith was that although there was a long period of time between the points of contact with the applicant, he was taking a lot of steps at his own instigation to resolve the company’s financial problems and he had a good grasp on what he had to do to recover. She said she had knowledge of his work ethic, knew that he had a nous for business and had shown a profit in the past. In her opinion it was just one job which had been a disaster, which lead to the liquidation.
[39] I accept that the mistake in the quote on the Ferny Grove job was a very big single mistake, with significant financial consequences. However, given the focus of the tests in section 56 AD (8A) is on prevention rather than dealing with problems after they have arisen, there was no satisfactory evidence that the affairs of the company were being managed in a prudent way, so that such a set back could be better dealt with, to avoid liquidation of the company.
[40] In this regard I find it compelling that there were no internal management accounts being used to monitor a job the size of the Ferny Grove job, and no advice had been taken in relation to how the financial affairs of the company should be conducted to enable large scale jobs to be undertaken. Additionally, the applicant’s imprudent lack of sufficient working capital and high overheads meant that his ability to meet a financial crisis brought about by a mistake and the downturn in business due to the global financial crisis, were limited.
[41] On all the evidence, I am not satisfied that the applicant took all reasonable steps available to him to avoid the Company’s liquidation.
[42] In these circumstances, it is not necessary to consider whether the discretion should be exercised to categorise the applicant as a permitted individual.
[43] I therefore make the following orders:
(a) The decision of the respondent, dated 13 May 2010 to refuse to categorise the applicant as a permitted individual be confirmed;
(b) Each party bear their own costs of the proceeding.
[44] In relation to costs, I note that the respondent did not seek an order for costs in its submissions. The applicant did seek the opportunity to make submissions in relation to costs. However, given the finding and the terms of section 100 of the QCAT Act, I do not intend to deal further with the issue.
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