Laidlaw v Queensland Building Services Authority
[2010] QCAT 70
•26 February 2010
CITATION:Laidlaw v Queensland Building Services Authority [2010] QCAT 70
PARTIES: WILLIAM EDWARD LAIDLAW
v
QUEENSLAND BUILDING SERVICES AUTHORITY
APPLICATION NUMBER: QR217-07
MATTER TYPE: General administrative review matters
HEARING DATE: 22 January 2010
HEARD AT: Brisbane
DECISION OF: Michelle Howard, member
DELIVERED ON: 26 February 2010
DELIVERED AT: Brisbane
ORDERS MADE: The decision of the QBSA dated 14 November 2007 to refuse to categorise the applicant as a permitted individual be set aside.
The applicant be categorised as a permitted individual.
CATCHWORDS: permitted individual- Part 3A section 56AD-Queensland Building Services Authority Act 1991 - onus in review jurisdiction- consideration of extrinsic material a matter of law
APPEARANCES and REPRESENTATION (if any):
Mr G Thomson of Counsel on behalf of the applicant and Ms S Afzal, Legal Officer on behalf of the respondent.
REASONS FOR DECISION
History and Application
What follows is a cautionary tale highlighting potential pitfalls for those who may consider investing in business as a minority share or interest holder, while taking on the responsibilities of a director. Mr Laidlaw (“Laidlaw or the applicant”) was a director of an earth moving/plant hire company, Grace McFadyen Pty Ltd (“Grace McFadyen”) when liquidators were appointed for it on 27 March 2007.
Following, and as a result of, the appointment of a liquidator, the Queensland Building Services Authority (“QBSA or the Authority”) notified the applicant that it considered him to be an ‘excluded individual’ for a relevant company event within the meaning of section 56AC of the Queensland Building Services Authority Act 1991 (“the QBSA Act”). The appointment of a liquidator for the benefit of a creditor is a relevant company event under the section. An individual is an excluded individual if the person was when a relevant company event happened, a director or secretary of, or an influential person for, the company. A company is an excluded company if, among others, a director for the company is an excluded individual for a relevant event.
An excluded individual may apply to the QBSA to be categorised as a permitted individual for the relevant event under section 56AD of the QBSA Act. Under Part 3A Division 3, the QBSA must not grant a licence to an excluded individual or an excluded company and must cancel the licence of a person who is not successful on an application to be categorised as a permitted individual. There is very practical consequence for the applicant of being an excluded individual. The applicant is now a director of KISS Graphics Pty Ltd (“KISS Graphics”) which designs manufactures and installs signs. Kiss Graphics holds a licence from QBSA which enables it to install the signs.
The applicant made an application to the QBSA to be categorised as a permitted individual for the relevant company event, in this case, the appointment of a liquidator of Grace McFadyen. His application was refused in a decision of the QBSA. The applicant filed an application to review the decision of that QBSA in the Commercial and Consumer Tribunal (“CCT”).
The Applicable Law
On 1 December 2009, the CCT was abolished and the Queensland Civil and Administrative Tribunal (“QCAT”) became responsible for dealing with the matter. By virtue of the relevant transitional provisions of the Queensland Civil and Administrative Tribunal Act 2009 (“the QCAT Act”), especially section 271, QCAT must deal with the matter under the QCAT Act or an enabling Act, but in doing so has only the powers and functions of the former tribunal, in this instance, the CCT. As the matter was effectively an appeal against a decision of the QBSA to the CCT, under section 271(3) the decision appealed is a reviewable decision for applying the QCAT Act to the proceeding. As the proceeding is a reviewable decision for applying the QCAT Act to the proceeding, procedure relevant to the review jurisdiction under the QCAT Act is applicable in dealing with the matter.
CCT’s functions and powers were set out in Part 6 of the Commercial and Consumer Tribunal Act 2003, especially sections 101 and 104. The CCT was empowered to review a decision within jurisdiction under an empowering Act (in this case the QBSA Act), and had a discretion to confirm the decision; set the decision aside and substitute another decision within QBSA powers; or set the decision aside and return the matter to the QBSA with directions. The accepted function of the CCT, and its predecessors, when reviewing such a decision was to conduct a fresh hearing on the merits,[1] in effect, ‘standing in the shoes’ of the decision-maker. The CCT was entitled to consider all of the evidence available to it.[2]
[1] R v Gaffney, Ex parte Builders registration Board of Queensland [1987] 1 Qd R 90; QBSA v Carey (decision of 20 June 1997 District Court of Queensland Appeal No 1209 Brabazon DCJ); Hyde v QBSA [2003] QBT 30 (20 February 2003); Nation v QBSA [2006] QCCTB 114 (30 June 2006) [58]; Eliaba v QBSA [2009] QCCTB 23 [28-41].
[2] Delonga v QBSA [2004] QCCTB 26 (29 October 2004) [36]; Nation v QBSA [2006] QCCTB 114 (30 June 2006) [58]; Eliaba v QBSA [2009] QCCTB 23 [28-41].
Part 3 A of the QBSA Act
Part 3A of the QBSA Act deals with excluded and permitted individuals.
Section 56AC (2) and (4) apply to an individual if, a company has among other things, a liquidator appointed for the benefit of a creditor, and 5 years have not since elapsed. An individual who was, when the liquidation occurred, a director, secretary, or an influential person for the company, is an excluded individual for the relevant event. The provision extends its reach to a person who was within the period of one year immediately before the relevant company event, a director, secretary or influential person: section 56AC(2)(c)(ii).
Relevantly, an individual may apply to the QBSA to be categorised as a permitted individual for a relevant event: section 56 AD(1). An application must include the reasons why the individual should be categorised as a permitted individual for the relevant event: section 56 AD(3). By virtue of section 56AD(8), QBSA may categorise the individual as a permitted individual
…only if the authority is satisfied, on the basis of the application, that the individual took all reasonable steps to avoid the coming in the existence of the circumstances that resulted in the happening of the relevant event.[3]
[3] QBSA Act s56AD(8).
These provisions have been previously considered by predecessor tribunals to QCAT. It has been considered that subsection 56AD(8) may be broken into 3 parts namely: the taking of all reasonable steps to avoid; the coming into existence of the circumstances; and that resulted in the happening of the relevant event.[4]
[4] Dellaway v QBSA [2007] QCCTB 181 (12 December 2007) [6].
In Hyde v QBSA [5] it was considered that a two-stage process is involved in reaching the decision. The first stage of the enquiry is whether the applicant has taken all reasonable steps to avoid the coming in to existence of the circumstances resulting in the happening of the relevant event. Secondly, if so, should the discretion be exercised to classify the person as a permitted individual. ‘All reasonable steps’ does not mean all possible steps.[6] Relevant steps are those taken to avoid the coming in to existence of the circumstances that resulted in the relevant event, but not the relevant event itself. [7] The test of reasonableness has been considered an objective one to be applied having regard to the actual circumstances of the applicant.[8] A wide enquiry is appropriate which includes the manner in which the applicant conducted the business.[9]
[5] [2003] QBT Q72-02. Applied for example, in Delonga v QBSA [2004] QCCTB 26 (29 October 2004); and Laghai v QBSA [2008] QCCTB 246 (28 November 2008).
[6] Hyde v QBSA [2003] QBT Q72-02 [52-53].
[7] Hyde v QBSA [2003] QBT Q72-02 [38-40].
[8] Delonga v QBSA [2004] QCCTB 26 (29 October 2004) [33].
[9] Dellaway v QBSA [2007] QCCTB 181 (12 December 2007) [7].
Extrinsic Material
The respondent submitted that the Tribunal could refer to extrinsic material, namely the Explanatory Notes and second Reading Speech, to assist with interpretation of the relevant provisions. The basis for the submission is unclear.
Extrinsic material was considered by the CCT in Delonga v QBSA.[10] However, the basis on which it was considered is not clear. Under section 28 of the QCAT Act which provides for procedure to be at the discretion of the Tribunal, QCAT must, amongst other things, act fairly and according to the substantial merits of the case; is not bound by the rules of evidence; and may inform itself in any way it sees fit. Under section 47 of the CCT Act, the CCT was also given procedural latitude. The flexibility and latitude afforded by these provisions is only procedural. It does not go to a ‘flexible’ approach to applying the law. The Tribunal is obliged to apply the law when making decisions in deciding proceedings before it. Whether extrinsic material may be considered is a matter of law.
[10] [2004] QCCTB 26 (29 October 2004) [28-29].
Section 14B(1) of the Acts Interpretation Act 1954 (Qld) provides, subject to subsection(2), for consideration of extrinsic material, which includes explanatory notes and second reading speeches,[11] capable of assisting the interpretation of a provision of an Act as follows:
[11] Acts Interpretation Act 1954 (Qld) s14B(3).
a) if the provision is ambiguous or obscure--to provide an interpretation of it; or
(b) if the ordinary meaning of the provision leads to a result that is manifestly absurd or is unreasonable--to provide an interpretation that avoids such a result; or
(c) in any other case--to confirm the interpretation conveyed by the ordinary meaning of the provision.
Under subsection 14B(2), in determining whether consideration should be given to extrinsic material, and in determining the weight to be given to extrinsic material, regard is to be had to--
(a) the desirability of a provision being interpreted as having its ordinary meaning; and
(b) the undesirability of prolonging proceedings without compensating advantage; and
(c) other relevant matters.
The provisions in Part 3A of the QBSA Act are clear. As far they apply to the applicant in this instance, the legislative provisions provide that, if a person was a director in a company at the time it goes in to liquidation, the individual is an excluded individual who is not entitled to hold a licence from the QBSA for 5 years unless a sole ground is satisfied; that is, the individual can be categorised as a an individual who took all reasonable steps to avoid the development of the circumstances which led to the appointment of the liquidator.
Accordingly, subsections 14B(1)(a) and (b) of the Acts Interpretation Act 1954 are not applicable. Under 14B(1)(c), regard may be had to the extrinsic material to confirm an interpretation conveyed by the ordinary meaning of the provision.
The Explanatory Notes confirm, as was referred to in Delonga v QBSA,[12] that Part 3A was inserted to overcome a deficiency in the regulatory scheme which allowed defaulting contractors to restructure and re-emerge in another corporate guise:
This new part was to remove individuals who have demonstrated their incapacity to manage finances from the building industry for a 5-year period.[13]
They refer to the sole ground for categorisation as a permitted individual as set out in section 56AD(8). This confirms the interpretation which I place on the provisions of Part 3A.
[12] [2004] QCCTB 26 (29 October 2004) [28-29].
[13] Explanatory Notes, Queensland Building Services Authority Amendment Bill 1999 (Qld) 18.
Further, the Explanatory Notes state that the ground established was intended to restrict permitted persons to instances where an applicant has been the victim of fraud or defalcation by, for example a partner or spouse. The latter, it seems to me, goes further than confirming an interpretation which may be placed on the words according to their ordinary meaning. The ordinary meaning of the words is broad enough to encompass circumstances when a person’s efforts to avoid the coming in to existence of the circumstances which led to the liquidation may constitute all reasonable steps, despite the absence of fraud or defalcation by another person. Each situation must be considered on its individual merits. Having regard to section 14B(2)(a), I place no weight on this aspect of the explanatory notes which would suggest application in circumstances of fraud or defalcation by another person.
The second reading speech [14] states:
So as to prevent injustice, a person who becomes an excluded individual may apply to the Building Services Authority to have that status expunged. To do so, they will have to prove that they could not have avoided the relevant financial catastrophe. This is intended to mean the cause of the relevant event was entirely outside the responsibility of the individual concerned.[15]
[14] Queensland, Hansard, 21 July 1999, 2770-2773 (Judy C Spence, Minister for Aboriginal and Torres Strait Islander Policy and Minister for Women’s Policy and Minister for Fair Trading).
[15] Ibid 2772.
In my view, the last two sentences are again broader than the ordinary meaning of the provision. Again, in accordance with section 14B(2)(a), I place no weight on them.
Onus
It has been considered, in various cases decided by the CCT, that the applicant bears the onus of establishing that he has taken all reasonable steps to avoid the coming in to existence of the circumstances resulting in the relevant event.[16] The respondent has submitted that the applicant bears this onus.
[16] Delonga v QBSA [2004] QCCTB 26 (29 October 2004) [35] and applied for example, in Parkes v QBSA[2008] QCCTB (7 May 2008) [37]; Cats v QBSA [2008] QCCTB 22 (6 February 2008) [49]. See also Nation v QBSA [2006] QCCTB 114 (30 June 2006) [57] and applied for example in Laghai v QBSA [2008] QCCTB 246 (28 November 2008) [15].
The proceeding before the Tribunal is a merits review of an administrative decision of the executive government. The QCAT Act does not place an onus of proof on a party to establish facts or make out a case for review. Likewise the CCT Act did not provide for an onus in relation to reviews.
Consideration has been given to the issue of onus in merits review proceedings in the federal arena before the Administrative Appeals Tribunal, where similarly the AAT Act does not deal with the issue of onus of proof. Generally there is no onus.[17] However, practically, a party will want to adduce evidence which supports the party’s case, since the Tribunal can only make its decision on the material before it.[18] In the absence of appropriate evidence the tribunal will not be free to make the decision sought by the party. This has sometimes been described as an evidentiary burden,[19] but there is no formal onus of proof. The question is whether the Tribunal is satisfied that the provision under consideration can be invoked on the information or material before it.
[17] See for example, McDonald v Director-General of Social Security (1984) 6 ALD 6 (Full Federal Court) (Woodward, Northrop and Jenkinson JJ); De Brett Investments Pty Ltd and Australian Fisheries Management Authority [2004] AATA 704 (30 June 2004) [126-127].
[18] De Brett Investments Pty Ltd and Australian Fisheries Management Authority [2004] AATA 704 (30 June 2004) [127].
[19] De Brett Investments Pty Ltd and Australian Fisheries Management Authority [2004] AATA 704 (30 June 2004) [127].
To my mind, for similar reasons there will generally be no onus in matters in the review jurisdiction considered by QCAT, and nor was there in the CCT.
Of course, the general position may be altered by particular legislative provisions. In this case, the QBSA Act does require that an application to be a permitted individual include reasons why the application should be granted and the QBSA may only so categorise the person if satisfied of the relevant matters. However, this does not amount to an onus of proof, although it is undoubtedly the case that in the absence of relevant information from the applicant, the decision-maker will be unable to make a decision to categorise the person as a permitted individual.
Matters to be considered
Sections 56AD(8A) and (8B) were inserted into the QBSA Act by the Queensland Building Services Authority and Other Legislation Amendment Act 2007. They were effective from 21 December 2007. They post-date both the QBSA decision to refuse to categorise the applicant as a permitted individual and the commencement of these proceedings. Section 56AD(8A) sets out matters to which the Authority must have regard in deciding whether an individual took all reasonable steps to avoid the coming into existence of the circumstances resulting in the relevant event. Section 56AD(8B) provides that the Authority is not prevented by section 56AD(8A) from having regard to other matters for deciding the question.
The applicant submitted that sections 56AD(8A) and (8B) do not apply as it would offend against the presumption that statutes, especially those with penal consequences, only operate retrospectively if clearly expressed to do so. Reliance was placed on QBSA v Gold Seal Australia Pty Ltd[20] and Waddington v Miah.[21]
[20] [2001] QBT 164 (21 March 2002) see especially [43].
[21] [1974] 1 WLR 683, especially at 694A.
The respondent submitted that QCAT must have regard to the matters set out in section 56AD(8A), namely:
· keeping proper books of account and financial records;
· seeking appropriate financial and legal advice before entering into financial or business arrangements or conducting business;
· reporting fraud or theft to the police;
· ensuring guarantees provided were covered by sufficient assets to cover the liability under the guarantees;
· putting in place appropriate credit management for amounts owing and taking reasonable steps for recovery of the amounts;
· making appropriate provision for Commonwealth and State Taxation debts.
Issues of statutory interpretation were not addressed in the submission.
Further, the QBSA stated that although the matters had to be considered, that would not assist the applicant if he had not provided material or submissions about each of the factors in his application, since under section 56AD(8), the decision must be made on the basis of the application. The submission seems to be that the applicant must have addressed the matters set out in 56AD(8A) in his application or his comments and material relevant to them could not be taken into account, even though 56AD(8A) was not in force at the time of his application or the application for review of QBSA’s decision. Such a result would be contrary to the Tribunal’s role to conduct a merits review considering all of the material available to it, and contrary to a fair and just approach if 56AD (8A) was applicable. Accordingly, I do not consider that the submission can be correct. In my view, a reasonable interpretation is that ‘the application’ includes the material subsequently produced in support of it.
The respondent informed the Tribunal that the CCT referred to section 56AD(8A) for guidance even when it was not applicable. In this regard, the Tribunal notes that in Langhai v QBSA [2008] QCCTB 246 (28 November 2008), where the reviewable decision was made before and the application for review was filed before, the enactment of section 56AD (8A), it appears that the section was considered applicable.
As discussed earlier, the general rules of statutory interpretation apply in the Tribunal. In these circumstances, the punitive effect of the relevant provisions was unchanged by the insertion of the matters set out in section 56AD(8A) and (8B). The provisions do not create new legal consequences: they simply set out matters which respectively must and may be taken into account in deciding an application to be categorised as a permitted individual. The applicant has had the opportunity to address these issues at the hearing. Accordingly, I consider that the provisions are applicable to the applicant.
Issues
The issues requiring determination by the Tribunal:
1. Did the applicant take all reasonable steps to avoid the coming in to existence of the circumstances which resulted in a liquidator being appointed for Grace McFadyen;
2. Should the applicant be categorised as a permitted individual;
3. Should the decision of the QBSA be confirmed, set aside or varied.
The Evidence and Findings of Fact
The applicant came to Australia on a business owners visa in 2000 which required that he invest a substantial amount of money in an Australian business. He had previous experience in business, although not the building industry when he invested in Grace McFadyen. Patrick Grace, Ronald McFadyen and the applicant were the directors of Grace McFadyen. Mr Laidlaw relied upon the advice of Kevin Rodgers, an accountant, to set up the business structure involving corporate, partnership and trust entities. He asserted that Rodgers handled the legal matters. Grace McFadyen was the trustee of three trusts that formed a partnership for the purpose of operating a business. Through the business structure, Grace and McFadyen each controlled a 40% share and Laidlaw a 20% share. Rodgers advised Grace McFadyen regarding accounting matters generally.
Mr Laidlaw was also the commercial manager of the business. In this role, he made administrative decisions on behalf of the company. However, all large transactions had to be approved by the majority. As a minority interest holder, he was unable to decide any major matter, or influence the ultimate decision. A level of acrimony developed between Laidlaw and Grace which further diluted his power to influence decisions. The applicant’s evidence was that he endeavoured to recover bad debts and had attended creditor’s meetings on behalf of Grace McFadyen when their debtors went into liquidation.
Grace McFadyen ceased trading in December 2004, although the applicant had ceased to work at the business from about September 2004. The applicant says that Grace McFadyen ceased to trade because it ran out of business. There was also one large, bad debt and the breakdown in the relationship between himself and the other directors and partners in the business. Subsequently, the creditors were paid in full and the assets were liquidated and distributed according to the respective holdings in Grace McFadyen. Final financial statements were completed for the years ending 30 June 2005 and 30 June 2006.The advice and professional services of Kevin Rodgers were relied upon to effect the cessation.
In the first quarter of 2005, the applicant discovered through a business acquaintance that the two other directors had been contacted in November 2004 by Anthony Richards Consulting Pty Ltd (ARC). He became aware that the other directors had spoken to a consultant from ARC, namely, Anthony Tong to assess the eligibility of Grace McFadyen to apply for a diesel fuel rebate through the Energy Grants Credit Scheme. McFadyen subsequently reluctantly told the applicant to contact Anthony Tong if he wanted to get his share of the rebate. The applicant believes the other directors intended to claim without reference to him. He asserts that they decided with their majority vote to make a claim.
He subsequently met with Anthony Tong who confirmed that he had received instructions from Patrick Grace. Tong, whose business card specifically referred to ‘Diesel Fuel Rebates,’ told the applicant that he was an expert in diesel fuel rebates claims. Further, Tong advised him orally that Grace McFadyen was entitled to the rebate. Tong asked the applicant to sign an Application for Registration relating to the Scheme. A written advice regarding eligibility was not sought by the applicant or provided to him. He asserts that he relied upon the advice provided by ARC, who were a professional consulting company engaged specifically in diesel fuel rebates. Ultimately, the applicant signed documentation to facilitate the application for the rebate to the Australian Taxation Office (‘the ATO’). Under cross-examination the applicant stated in essence that he considered that he was obliged to do this as signatory for the business, irrespective of his own views about the claim, and that he was unable to ‘block’ the claim. A decision had been taken by the other directors to make it.
He only became aware during these proceedings of a letter signed by Patrick Grace on Grace McFadyen letterhead dated 1 March 2005 to the ATO authorising ARC to act for Grace McFadyen in all matters pertaining to the Energy Grants Credit Scheme.
A copy of correspondence on letterhead from ARC dated 28 April 2005 confirmed that the claim for the rebate had been finalised. This letterhead and the business card of Anthony Tong as provided to the Tribunal confirm that Tong and his partner had some professional qualifications.
A rebate was obtained in the total amount of $287,233.95, of which the applicant received $44808.49, and each of the other directors received about $89616 in about April 2005.
In 2006, the Australian Tax Office (the ATO) conducted an audit into the fuel rebate and payment. On 27 October 2006, the ATO made a decision to reduce the diesel fuel rebate by the full amount of $287,233.95 on the basis that the activity claimed in respect of was not considered to be an eligible mining activity. In its decision, the ATO also advised of a General Interest Charge (GIC) of $60524.08 and a Penalty of $86170.17. The total amount to be paid to the ATO was $433,928.20.
By that time, Grace McFadyen was not trading and had no assets to meet the amount as the business had been wound down and its assets distributed. The business accountant, Kevin Rodgers, advised the three directors of 3 options: pay the amount; object to the ATO notice; or wind-up the company. The applicant’s evidence is that he made suggestions to the other partners to deal with this issue, namely, each put back in the money they had received to appeal the ATO decision; and make contributions to repay the amount in accordance with their share ownership percentages. Grace and McFadyen rejected both proposals and decided to place the Grace McFadyen into liquidation.
The applicant asserts that it was not possible for him personally to make the entire repayment or solely fund an appeal. Under cross-examination, the applicant stated that at the time of the ATO decision, he had insufficient assets left to liquidate to pay the ATO debt, although at the time he had not considered selling the home in which he lived with his family.
Further, he asserts that he could not, as the minority shareholder prevent Grace and McFadyen from engaging ARC to claim the diesel fuel rebate or the placement of Grace McFadyen into liquidation. Under cross-examination he stated that he ‘couldn’t stop them’ and that the other directors arranged it.
He disagreed with a report of the liquidator dated 3 July 2008 to the extent that it stated that the business was dissolved after it ‘traded profitably for 2 years but due to rising costs, internal control issues and insolvency of a major customer’ and ceased to trade in mid 2005. He also disagreed that the reason for the liquidation as stated in the report, namely, a statutory demand for payroll tax received for 01/02 and 04/05. The applicant’s evidence under cross-examination was that he did not consider this to be correct. Further, he asserted that the instructions to the liquidator were given by Grace and McFadyen.
The applicant stated that it was subsequent to the decision to place the company into liquidation that he became aware of a claim from the Commissioner for State Revenue (CSR) for a payroll tax liability. The applicant asserts that he became aware of this, he estimated, some four to five months after the diesel fuel rebate decision of the ATO was received. He again contacted Kevin Rodgers for advice.
At no stage did the applicant seek legal or other professional advice outside of the advice referred to from Kevin Rodgers regarding matters relevant to the business (other than from ARC about the diesel fuel rebate), its set up, the ATO debt or CSR claim or winding up. In relation to the diesel fuel rebate, the applicant relied upon the advice of ARC. Written advice was not sought from either of these sources in relation to the matters.
Kevin Rodgers is an accountant in private practice with 25 years experience: for 20 years he has been a partner. His practice is mostly advising small businesses. He gave evidence that he considered Grace McFadyen was successful although he was aware of acrimony between the applicant and Patrick Grace.
Rodgers confirmed that as of 31 December 2004, the relevant partnership structure was dissolved and the company ceased to trade. He explained why losses shown in the financial statements did not affect his assessment as to the success of the business. In particular, he referred to a one-off bad debt of about $291,000 in 2004; and after the business had ceased to trade, a write-off of goodwill of at least $300,000; and drawings as the directors received a return of their contributions of about $600,000. During this period, Grace McFadyen continued to meet its contracted obligations while the winding down process occurred. He considered it had remained solvent at all relevant times because of guarantees.
He confirmed that after the receipt of the ATO notice that he gave advice to the three directors of Grace McFadyen as the applicant suggests. He believed the CSR issue post-dated the ATO notice but did not have a copy of the CSR notice. He stated that his office may have it, or it may have gone to the liquidator. He considered that provision had not been required for payroll tax because the company did not have a liability. His preliminary view was that the CSR payroll tax liability was open to challenge because it appeared to be calculated as though all labour costs were attributable to workers for payroll tax purposes when they were not. His view was that this was incorrect. However, the company was ‘destined for liquidation already’ before this issue arose and so Patrick Grace and Ronald McFadyen decided not to spend money to challenge it.
He confirmed that advice was sought from him about ceasing the business of Grace McFadyen and that advice was given. He stated that advice was given orally rather than in writing about ceasing the business and regarding the ATO notice.
The applicant’s solicitor gave evidence regarding her efforts on the applicant’s behalf to obtain copies of documents from various sources including the liquidator, the ATO, ARC and the former accountant, with limited success.
The respondent filed affidavits of Leean Tyler and Ryan Peters and a statement of reasons. Ryan Peters of QBSA was cross-examined. Mr Peters was an administration officer at QBSA, who adopted the original decision as his own. He was cross-examined about the adequacy of oral advice as opposed to written advice, and any other steps he suggested the applicant should have taken. He conceded that he did not consider it would have been reasonable for the applicant to have to sell his own home in order to solely fund a challenge to the ATO decision. He considered that ARC had not provided advice about eligibility for the diesel fuel rebate and that the applicant had a responsibility to form his own opinion, based on an understanding of why particular advice was given. He considered that if Grace McFadyen was not entitled to the rebate, it followed that it must have made a false or misleading statement to the ATO.
The liquidators were not called to give evidence. Copies of various documents about the liquidation and a report of the liquidator dated 3 July 2008 were before the Tribunal. A summary of Affairs of Grace McFadyen dated at or about the date that Grace McFadyen went into liquidation, refers to liabilities of $965,677. This amount must be inclusive of the ATO and CSR debts, so both were known by the time the company went into liquidation.
The evidence of the applicant and his supporting witnesses was not significantly contradicted or challenged in cross-examination. Neither the applicant or Rodgers presented as untruthful witnesses. I accept the evidence presented by and for the applicant.
Accordingly, I accept on the balance of probabilities that the decision was made by Grace and McFadyen to place the business in liquidation following receipt of the ATO decision. The information they may have conveyed to the liquidator is unknown and could not be tested. Specifically in respect of the CSR debt, given the evidence of both the applicant and the accountant, Kevin Rodgers, I find on the balance of probabilities that it post-dated the ATO debt and that by that time, Grace and McFadyen had already decided to place the company in liquidation. The correspondence from the liquidator suggesting that the CSR debt was a factor was not able to be tested. The debt was known at the time of the liquidation. Accordingly, I give no weight to the statements in the liquidator’s report about the history of the cessation of trading and the reasons for the liquidation.
Further, I am satisfied on the evidence that the applicant took advice regarding the diesel fuel rebate from ARC and from Kevin Rodgers regarding the setting up, running and winding down of Grace McFadyen.
The Submissions
Both parties provided written submissions and made brief oral submissions.
The applicant submitted that the test of reasonableness in section 56AD(8) is an objective one, to be applied ‘with due regard being given to the applicant’s actual circumstances’: Parkes v QBSA.[22] He argued that the real cause of the liquidation was the decision of the ATO to seek recovery of the diesel fuel rebate together with GIC and penalty. It was submitted that Mr Laidlaw took every reasonable step he could to avoid the situation in which the rebate was claimed and later clawed back. The rebate was claimed on advice. The applicant, with his 20% interest, was unable to control the major business decisions of the company. He proposed that the rebate money be used to fight the decision of the ATO, but this proposal was rejected. Further, it was submitted that proceedings in the Administrative Appeals Tribunal and the Federal Court of Australia regarding the diesel fuel rebate in somewhat similar circumstances was considered valid by the AAT,[23] but later overturned by the Federal Court, demonstrating the unreasonableness of criticising Grace McFadyen for claiming.[24] Further, it was not the applicant’s decision to appoint a liquidator. In the circumstances, it was not realistic for the applicant to fund the ATO claim himself, even if he had funds to do so. Regarding the payroll tax debt, the applicant argued that this was not a proximate cause of the liquidation. In the circumstances, the applicant submits that he took all reasonable steps.
[22] [2008] QCCTB 55 (7 May 2008).
[23] Re a Taxpayer and the Commissioner of Taxation (2007) ALD 501.
[24] Commissioner of Taxation v Ostwald Bros Civil Pty Ltd [2008] FCAFC 99.
The respondent submitted, among other things, that the applicant failed to establish that he took all reasonable steps in that he did not provide any or sufficient documentary and/ or other evidence of:
· the company’s financial position;
· distribution of the company’s assets and any professional advice sought in relation to the liquidation and distribution of the assets;
· expert advice about his role as a company director;
· professional advice regarding the company’s eligibility for the diesel fuel rebate;
· negotiations or attempts by the applicant with the other two directors to pay the debt to the ATO;
· attempts to dispute or query or review the ATO decision;
· attempts to repay the ATO;
· expert advice regarding eligibility for the diesel fuel rebate;
· legal or professional advice regarding the ATO debt and any action against ARC
· legal or financial advice regarding his position with respect to the ATO debt in light of the other directors attitude to the debt;
· the debt owed to the CSR and the manner in which the company made provision for payroll tax.
· The debt incurred to CSR;
· When the notification was received regarding the CSR debt;
· Attempts by the company or the applicant to pay the CSR debt;
· Company’s position when the CSR debt was realised;
· The manner in which the company made provision for taxation debts;
· Attempts to remove himself as a director or shareholder; and
· The insolvency of a major customer.
Further, it was submitted that reposing trust in the other two directors, in the circumstances, of their relationship, is not taking all reasonable steps.
The Decision
Did the applicant take all reasonable steps to avoid the coming into existence of the circumstances resulting in the appointment of the liquidator
The ATO decision that Grace McFadyen had overclaimed its diesel fuel rebate and the associated imposition of penalty and GIC was the proximate cause of the Grace McFadyen being placed in liquidation by Grace and McFadyen.
Specifically, I have had regard to the matters referred to in subsection 56
AD(8A). Kevin Rodgers was engaged at all relevant times to provide advice regarding accounting requirements. After the decision had been taken in or about 2004 to wind down Grace McFadyen, he attended to the necessary tasks and prepared financial statements through until financial statements were completed to 30 June 2006. It is reasonable to infer that he did this from the relevant source information, suggesting that proper books of account and financial records were kept. Due to events subsequently transpiring it has been difficult for the applicant to secure relevant documentation from others from whom it was sought. This does not mean that it was not kept. The applicant sought advice from Mr Rodgers regarding setting up, running and winding down the business. He received advice from ARC regarding eligibility for the diesel fuel rebate. In each case, it was reasonable for him to rely upon their professional advice although they did not reduce it to writing. In hindsight it may have been preferable for him to have sought written confirmation of advice provided. However, the important fact is that he did receive professional advice from persons who held themselves out, and it was reasonable for the applicant to consider, were appropriate to give advice regarding the matters upon which they did.
There was no fraud or theft which required reporting to the police. It is clear from Kevin Rodgers evidence that guarantees were sufficient to cover the liabilities of the business until it was wound down. At the time the ATO debt was raised, Grace McFadyen had effectively been wound down. The one-off bad debt of some $291,000 was unsuccessfully pursued by the applicant for Grace McFadyen when the debtor went into liquidation, but this was not in any event, a cause of the liquidation, having occurred some years earlier and following which the company remained solvent and assets were distributed to the interest holders. The ATO debt arose following a diesel fuel rebate claim. It wasn’t a taxation debt that would be provided for in the ordinary course of business. The CSR debt, to the extent that it is relevant, given that I have found it was not a proximate cause of the relevant event was raised in hindsight. It is apparent that Mr Rodgers considered it was challengeable and that he considered there had been no need for provision to be made for payroll tax. Accordingly, it has not been established that appropriate provision was not made for taxation debts.
Other matters are relevant in my view under section 56AD(8B). As referred to above, to decide this issue, I am entitled to consider a wide enquiry about the way in which the applicant conducted business.
The business structure was set up with the benefit of professional advice and assistance. Grace McFadyen operated successfully from 2000 to 2004. When bad debts arose, the applicant took steps to recover them, although when a large one-off debtor went in to liquidation, he was unable to successfully do so. When it appeared the market for Grace McFadyen’s business had changed, and in the context of a deteriorating relationship between partners, the decision was taken for the company to pay its creditors, dissolve the partnership structure and for the interest holders to be repaid their equity. This decision was taken with professional advice from the accountant, Kevin Rodgers. He was engaged to attend to the mechanics of the process.
While this winding down process was underway, the two other directors decided to make a claim for the diesel fuel rebate. They did not make the applicant aware of their intention to make a claim for the rebate. He became aware of it only incidentally. He could not stop the other directors who between them had the majority interest from taking the decision to make the claim. However, when he became aware of their intention, he took reasonable steps. The applicant sought out information from one of the other directors. Following this, he went to see Anthony Tong, the consultant engaged by the other directors to advise them. Despite his position as a minority interest holder, he sought his own advice regarding eligibility. He did not request that it be reduced to writing. In my view, this is not significant. Oral advice is advice. The applicant was powerless to stop the other directors from proceeding with the claim.
The claim was made and subsequently paid in April 2005 by the ATO in the sum of $287,233.95. The applicant received $44808.49. The winding down of the business continued.
It was not until late October 2006 that the ATO made its decision to reduce the rebate by the full amount and impose a penalty as well as accrue general interest charges. The applicant then took advice about options from Kevin Rodgers. He endeavoured to convince the other two directors to either challenge the ATO decision or repay the amount in accordance with their share ownership percentages. The other directors rejected these proposals. They decided to place Grace McFadyen in liquidation. The applicant could not stop them from taking this course. He was in effect powerless to change the course they decided.
The CSR debt arose shortly afterwards. As the decision had already been taken to place Grace McFadyen in liquidation, it is not a proximate cause of the liquidation. Kevin Rodgers professional opinion is that Grace McFadyen did not need to make provision for payroll tax and that the assessment was challengeable. It was not challenged however, as the other directors, consistent with their attitude to the ATO debt, were unwilling to contribute their own funds to the challenge for a company which was ‘already destined for liquidation.’
The applicant did not seek the diesel fuel rebate. At best, he acquiesced to it; but in reality, could not stop the other two directors from proceeding with the claim in any event. Even if he had not become aware of the claim, he would have subsequently found himself in the same position when the ATO debt was raised. Further, he then attempted to have the directors contribute funds to challenge the decision or repay the amount to the ATO. These attempts were refused. The other directors decided to place the business into liquidation. The applicant could not prevent this, given his minority position.
In my view, the applicant provided relevant evidence about the issues raised by the QBSA and largely the steps which appear to be suggested as reasonable by the QBSA’s submission. Regarding the steps/issues referred to which were not taken, the applicant did not personally fund the review of the ATO decision or personally repay the entire amount. These are two possible steps which Ryan Peters conceded were not reasonable. In my view, objectively they were not reasonably required, even if the applicant could have funded them, given the decisions taken by the other directors. Similarly, he did not seek advice regarding any action against ARC. Again, given the decision taken by the other directors, I do not consider this was objectively reasonably required. Nor did he resign as director. Resignation from directorship was unlikely to have assisted the situation because of the one year relation-back period provided for in section 56AC(c)(ii) of the QBSA Act and in the circumstances of the decision made in late 2004 to wind down the business was not reasonably objectively required.
Further, the QBSA submitted that the applicant should not have trusted his co-directors. It does not appear on the evidence that he did. He independently obtained advice regarding all relevant issues from Rodgers and ARC. He simply did not have control over the significant decisions made by the directors.
In the circumstances, I cannot identify any other reasonable step which the applicant should have taken. I am satisfied that he took all reasonable steps to avoid coming into existence of the circumstances that resulted in the happening of the relevant event.
Exercise of Discretion
I must now consider whether to exercise the discretion under section 56AD (8) to categorise the adult as a permitted individual.
The applicant’s conduct may be relevant. Although the applicant was a minority interest holder who could not control the decision made by the other directors, he used his efforts to seek to influence a result that may not have ended in a liquidation of Grace McFadyen. His conduct in this regard seems meritorious and not disqualifying.
No evidence was presented which provides a basis for the Tribunal to decline to exercise its discretion.
In all of the circumstances, I will make orders setting aside the QBSA’s decision and substituting for it a decision categorising the applicant as a permitted individual.
Orders
That the decision of the QBSA dated 14 November 2007 to refuse to categorise the applicant as a permitted individual be set aside.
That the applicant be categorised as a permitted individual.
Costs reserved.
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