Lowseck v Queensland Building Services Authority - [2012] QCAT 280

CITATION:		Lowseck v Queensland Building Services Authority [2012] QCAT 280
PARTIES:	Ryan Johnathon Lowseck
v
Queensland Building Services Authority

APPLICATION NUMBER:

OCR063-11

MATTER TYPE:

Occupational regulation matters

HEARING DATE:

17 October 2011

HEARD AT:

Brisbane

DECISION OF:

Mr Jim Allen, Member

DELIVERED ON:

2 July 2012

DELIVERED AT:

Brisbane

ORDERS MADE:

The decision of the Queensland Building Services Authority is confirmed.

CATCHWORDS:

Permitted Individual – bankruptcy – failure to provide for Commonwealth taxation debts

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

APPEARANCES and REPRESENTATION (if any):

By consent of the parties the application was determined by the Tribunal on the papers filed in the Tribunal in accordance with section 32 of the Queensland Civil and Administrative Tribunal Act 2009.

REASONS FOR DECISION

Introduction

Mr Lowseck is a plasterer who wished to be licensed by the Authority to perform his trade in Queensland. As a result of him going into bankruptcy on 17 December 2007 he could only be licensed if the Authority categorised him as a permitted individual[1]. Mr Lowseck’s application to be categorised as a permitted individual was refused by the authority on 1 March 2011. Mr Lowseck has applied to the Tribunal for a review of that decision.
[1] Sections 56AC and 56AD of the Queensland Building Services Authority Act 1991.

The Law

The Tribunal when reviewing a decision does so by way of a fresh hearing on the merits[2] in accordance with the enabling Act, the Queensland Building Services Authority Act 1991[3] and has all of the functions of the decision-maker[4], that is it steps into the shoes of the decision maker. The purpose of the review is to produce the correct and preferable decision[5].
[2] Section 19(2) of the Queensland Civil and Administrative Tribunal Act 2009.
[3] Section 19(b) of the QCAT Act.
[4] Section 19(c) of the QCAT Act.
[5] Section 21(1) of the QCAT Act.
The decision-maker’s role is to use their best endeavours to help the tribunal make the decision[6].
[6] Section 20(1) of the QCAT Act.
The Tribunal then must decide the review based on the evidence placed before it and accepted by it and applying the relevant provisions of the Acts, that is the QCAT and QBSA Acts.
The Authority in its role of helping the Tribunal has made submissions in regard to the applicable law which there being no contrary submissions from Mr Lowseck are accepted by the Tribunal.
The Tribunal, standing in the shoes of the Authority, must act in accordance with the objects of the QBSA Act, which include under subsection 3(a)(ii) to regulate the building industry:
“to achieve a reasonable balance between the interests of building contractors and consumers.”
An individual may apply to the Authority to be categorised as a permitted individual if the individual has become aware that the authority considers the individual to be an excluded individual[7]. The relevant event is a ‘relevant bankruptcy event’ or a ‘relevant company event’[8]. A relevant bankruptcy event occurs if an individual takes advantage of the laws of bankruptcy or becomes bankrupt and 5 years have not elapsed since the relevant bankruptcy event happened.
[7] Section 56AD(1) of the QBSA Act.
[8] Section 56AC(1)(a) or (2)(b).
The Authority may categorise the individual as a permitted individual only if 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.[9] This requires that the individual must have taken all not some, reasonable steps to avoid those circumstances[10]. So that if a step has not been taken, and the Tribunal is satisfied that it was a reasonable step to have been taken, then the decision under review must be confirmed.
[9] Section 56AD(8).
[10] Cats v QBSA [2008] QCCTB 22 at [13].
The Authority in deciding whether an individual took all reasonable steps must have regard to action taken by the individual in relation to the following:
a)Keeping 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 for recovery of accounts;
f)Making appropriate provision for Commonwealth and State taxation debts.[11]
[11] Section 56AD (8A) of the QBSA Act.
Though nothing prevents the Authority from having regard to other matters for deciding whether an individual took all reasonable steps[12].
[12] Section 56AD(8B) of the QBSA Act.
The Honourable Judge McGill gave guidance as to the test required by section 56AD(8) in the decision of Younan v Queensland Building Services Authority[13] where he stated
“The test in section 56AD (8) requires first, the identification of the relevant event; second, the identification of the circumstances that resulted in the happening of the relevant event; third, a consideration of whether the relevant individual took all reasonable steps to avoid those circumstances coming into existence; and if satisfied of that, fourth, a decision whether to categorise as a permitted individual.”
[13] [2010] Queensland District Court 158 at para [26].
His Honour Judge McGill has also given guidance as to how consideration should be given to the matters set out in section 56AD (8A)
“it is immediately apparent that these are all concerned with the prudent management of a company as an ongoing business or even in the case of (b) something which is to be done before one conducts business or enters into financial or business arrangements. In other words the focus of this subsection is on prevention rather than dealings with problems after they have arisen.”[14]
[14] At para [24].
What were “reasonable steps” is to be decided objectively, having regard to the circumstances of the individual. His Honour Judge McGill observed in Younan that:
“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.”[15]
[15] At para [26].
In regard to the requirement that the Tribunal, standing in the shoes of the Authority, must be satisfied, on the basis of the application, that the individual took all reasonable steps his Honour Judge McGill in Younan said
“An application to be categorised as a permitted individual must under s56AD(3) include the reasons why the authority should categorise the individual as a permitted individual for the relevant event. Further, subsection (8) authorises the categorisation of an individual as a permitted individual only if the authority is 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. It follows that if relevant considerations are not addressed by the applicant, so that 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.”[16]
[16] At para [37].
The review is of the steps taken to avoid the circumstances resulting in the happening of the relevant event, not the relevant event itself. As a matter of logic, these are steps that could only have been taken before the relevant event. The enquiry is wider than a review of the steps taken by the applicant when the relevant event loomed. The wider enquiry includes the manner the applicant conducted his business, costed works, and administered contracts[17].
[17]Dellaway v Queensland Building Services Authority [2008] Queensland Civil and Consumer Tribunal 22 at [13].
Under section 56AD(8) of the QBSA ACT, the Authority “may” categorise an individual as a permitted individual for the relevant event. That his Honour observed that if satisfied that the relevant individual took all reasonable steps, then a decision whether to categorise him as a permitted individual is required[18]. Accordingly, if satisfied that an individual took all reasonable steps, a discretion to categorise the individual as a permitted individual remains[19].
[18] At para [26].
[19]Delonga v Queensland Building Services Authority [2008] Queensland Civil and Consumer Tribunal 22 at [13].
The Authority submits that the object of Part 3A of the QBSA Act is for the protection of creditors. Consistent with that object, in the exercise of the discretion, the factors to be considered are said to include:
i)     Any phoenix activity;
ii)    Any previous relevant event; and
iii)   Whether there are unrelated employees, subcontractors, trade suppliers or members of the public who would be affected adversely by the applicant not being categorised as a permitted individual.

The Facts

Mr Lowseck was declared bankrupt as a result of a debtor’s petition on 17 December 2007[20]. The application to be a permitted individual[21] received by the Authority on 20 January 2011disclosed the following:
a)that the total amount owing by Mr Lowseck to creditors for the relevant event was $119,220;
b)That the main causes of the relevant event were:
i)     Commonwealth or State Taxation Department;
ii)    Excessive interest payments on loan monies or capital losses on repayments;
iii)   Sickness or injury;
iv)   Domestic discord or relationship breakdown; and
v)     Overworking 6 to 6 led to burning out.
c)The steps taken to avoid this cause were said to be, that after becoming depressed and using his saved tax to live Mr Lowseck returned to work and worked 6 to 6 trying to re-save all money. As the problems in his relationship with his wife grew more and more, and working harder his depression also grew. He went for help with his GP, Dr Loo on October 2002, who prescribed anti-depressants. By then his tax was due. He tried to repay the money owed but having previous loans it was hard. He sought the help of his accountant, Bill Yates who advised him to pay as much as he could. Which he did over a course of two years. He saw his payments of $50 to $250 a week only was paying off the interest from his tax debt.
[20]        Statement of Natasha Dennis dated 26 May 2011 Annexure ND-1.
[21]        Statement of Natasha Dennis dated 26 May 2011 Annexure ND-2.
The Statement of Affairs dated 10 December 2007[22] filed by Mr Lowseck with the Insolvency and Trustee Service Australia initiating his bankruptcy disclosed that:
[22]        Statement of Natasha Dennis dated 26 May 2011 Annexure ND-2.
a)Mr Lowseck lived with his spouse who had a separate income and there were no current family court proceedings;
b)he was self-employed with an income of $40,596 over the last 12 months and projected income of $40,000 for the next 12 months;
c)the main cause of the insolvency was ill health;
d)he had not previously been bankrupt;
e)his assets comprised tools of trade and two motor vehicles, a Peugeot purchased in 2004 valued at $11,000 and a Falcon utility purchased in 2005 valued at $21,143. He had no cash in his bank accounts;
f)His liabilities included:
i)      GE Auto chattel mortgage entered 10/3/04       $ 10,500.00;
ii)      Ford Credit  entered 2/2/06             $ 21,143.33;
iii)     CBA Personal loan        entered 2003               $    8,353.00;
iv)     GE Creditline                  entered 2000               $    2,500.00;
v)      Westpac Mastercard     continuing  $    3,300.00;
vi)     Betaboard, a trade creditor entered 2007         $    5,646.00;
vii)    Australian Taxation Office income tax 2004      $ 12,534.00;
and
viii)   Australian Taxation Office integrated account    $ 75,664.00
Total  $108,077.00
Mr Lowseck’s income tax returns for the years 2004 to 2007 were supplied and his 2007 income tax assessment showed a debt due of $12,534.80. The total amount owing to the Australian Taxation Office at the time of the 2007 assessment was $18,279.06 and the amount of accumulated tax from the years 2005 and 2006 based on the income tax returns for those years was $7,421.45 so it is assumed the remainder of that debt would have been interest and prior years unpaid taxes.
A letter from Dr Loo confirmed that he had been treating Mr Lowseck for depression during the period October 2002 to October 2003. Mr Nathan Coxsen also provided a letter confirming of Mr Lowseck’s depression and marriage difficulty and support for the application to be classified as a permitted individual. In a further letter Dr Loo stated that Mr Lowseck had been unable to fulfil his work requirements fully as he found it difficult to concentrate and maintain his drives and desire to work during the above period.
Mr Lowseck provided further material relating to the particular requirements of section 56AD(8A) in support of his application as follows:
i) Section 56AD(8A)(A) He has all income tax and expense records, all copies of BAS statements, all receipts, all annual tax returns for the last 5 years and he provided a sample of his cash book and expense records;
ii) Section 56AD(8A)(b) He had advice from his accountant to pay the ATO whatever amount he could at the time. That he had entered a payment arrangement with the ATO in June 2003 and then signed a direct debit repayment request with them in March 2005.
iii) Section 56AD(8A)(e) All contractors used to pay him on time and at that time there was no need to have any elaborate credit policies in place considering the nature of his business. There was never a case of any debts being written off.
iv) Section 56AD(8A)(f) Prior to his sickness he was paying all of his tax dues (both GST and Income tax). Even during his sickness he was trying to do the right thing and paying off whatever he could till a stage came where he could not work and had to use his tax savings to pay bills. As explained elsewhere non-payment of tax dues was beyond his control because of my illness and irregular work. Burden of interest on tax dues and the resultant stress and scare caused me to do whatever best he could. But obviously that was not enough and that led to his bankruptcy.
Mr Lowseck states from all the above it can be seen he took all reasonable steps possible under the circumstances (his illness). However, when he was suffering from depression for such a long period of time (more than 1 year and then the lasting effects of the illness for an extended period of time where his performance was not 100%) and the interest burden was mounting, he could not have avoided bankruptcy in spite of putting in best efforts.
Mr Lowseck provided a history of his depression and how as a result of it he fell behind in his tax payments and the ATO were charging him hefty interest. At that time he sought advice from his accountant to contact the ATO and they advised that he could enter the payment arrangement with them.
He later found out that the repayment schedule was very strong, in January 2004 he had to pay them almost $4,900 and even being late on a single BAS statement would make the repayment schedule null and void. Faced with a strong repayment schedule, a heavy interest burden, irregular income streams and a perceived threat of legal action led to a default in the payment arrangement. All this while he was struggling with his sickness, work, and ability to pay the bills.
By late 2006 with interest building on his tax and BAS he felt a massive burden and sense of hopelessness as this debt was still continuing in 2007 (despite all his efforts to do the right thing and come out of the dire situation) during which time the ATO froze his accounts, leading to a very stressful situation. He again sought advice from his accountant who advised him that bankruptcy was his only next action to take. He was left with no other option and on 17 December 2007 with his accounts frozen and the ATO refusing to release any funds at all he became bankrupt.
A letter[23] from Mr Lowseck’s accountant, Mr William Yates confirmed that he had been acting as Mr Lowseck’s accountant since 2000. As a result of Mr Lowseck’s illness his income dropped off significantly and his savings were used for living expenses. Following the illness the lodgement of the business activity statements and income tax returns were brought up to date, but payment of the resulting liability was not possible. He also confirmed the payment arrangements with the ATO and that the ATO had garnisheed Mr Lowseck’s bank account which resulted in him advising Mr Lowseck to enter bankruptcy.
[23] Statement of Natasha Dennis dated 26 May 2011 Annexure ND-4.
In Mr Yates’ opinion Mr Lowseck had appropriate credit (debtors) management policies in place. This involved him keeping a debtors journal. There was only one trade creditor for which all invoices were reconciled against monthly statements.
The payment arrangement made with the Australian Taxation Office made on 27 June 2003 in regard to income tax required Mr Lowseck to make 5 payments of $200 per month starting in August with a final payment of $4,751.41 in January 2004. This payment was said to include payment of an estimate of the General Interest Charge due by Mr Lowseck during that period. A similar payment was made in regard to the integrated client account on 27 June 2003 for 6 payments of $200 with a final payment of $141.86 in January 2004.
A further payment arrangement in regard to activity statements (BAS GST) was evidenced by a monthly direct debit of $1,016.10 to be made over 18 months, a total of $18,289.80, commencing in March 2005. There was no evidence provided by Mr Lowseck that these payments were made.
Mr Lowseck also provided some account statements from the Australian Taxation Office. This shows that he was in debit for Goods and Services Tax from 11 November 2002 with $1,290.83 owing as at 28 June 2003. There were some small payments during this period. By May 2005 the Goods and Services Tax debt was $15,678.01 and by 28 February 2008.
In February 2005 he appears had a debt a $17,409.38 in regard to PAYG. In May 2005 his combined PAYG and GST debt was $15,678.01 and after debits and credits the balance was $31,906.54 by February 2006. The debits to Mr Lowseck’s account during this period totalled $22,417 and the payments totalled $6,186.34. The interest on the tax debt during this period was $2,364.91.
The Tribunal notes that Mr Lowseck provided material in regard to his management of his financial obligations following his bankruptcy which in accordance with the decision in Younan the Tribunal has not been able to take account of.
The Authority noted that Mr Lowseck did not obtain legal or financial advice before entering various personal and motor vehicle loans or the business arrangement with Beta board.
The Authority made submissions on the facts and notes that Mr Lowseck provided no evidence of repayment arrangements with the Australian Taxation Office after January 2004 or repayments to the ATO after February 2006.

Discussion

In accordance with the four step process set out in the Younan decision the tribunal is satisfied that the relevant event for Mr Lowseck was the declaration of his bankruptcy on 17 December 2007.

The circumstances that lead to the relevant event are related to Mr Lowseck’s inability to pay his accumulated Commonwealth Taxation debts. Mr Lowseck states that he first had problems paying his taxes following illness in 2002 when he used his accumulated savings including those for tax purpose for living expenses. The Tribunal though is satisfied that the circumstances relate to a later period of accumulated taxation liabilities which culminated in the ATO freezing Mr Lowseck’s bank accounts in 2007 and it is at that time he obtained advice which lead to him presenting a debtors petition for bankruptcy.
Did Mr Lowseck take all reasonable steps to avoid these circumstances in accordance with section 56AD(8A) of the QBSA Act?
a)Mr Lowseck’s income tax returns show that he has kept the books of account and financial records necessary to comply with the requirements of the Income Tax Assessment Acts;
b)Mr Lowseck has accumulated debt including personal and car loans which he would need to have had the capacity there is no evidence that he obtained financial advice before he entered these transactions in particular the car loans in 2004 and 2006;
c)There are no apparent issues in regard to fraud or theft;
d)There is no evidence of any guarantee being provided;
e)The credit arrangements Mr Lowseck had in place which are set out in Mr Yates’ letter were appropriate having regard to the size of Mr Lowseck’s business and this is a reasonable step in regard to Mr Lowseck;
f)Mr Lowseck first had difficulty paying his tax debts as a result of his illness in 2002 and he entered into a payment arrangement to deal with that circumstance. Which unfortunately he did not honour. Mr Lowseck was self-employed and so his income tax was not provided for by an employer. He was required to make provision for it. In the same way Mr Lowseck needed to make provision for GST. He clearly did not have appropriate arrangements in place for either of these taxes and the debt to the ATO which was approximately $5,751.41 in June 2003 had ballooned to $88,664 at the time of Mr Lowseck’s bankruptcy. The Tribunal notes that during this period Mr Lowseck borrowed money to buy cars which resulted in another payment burden at a time when he was not able to meet tax obligations.
The Tribunal is satisfied that a reasonable step which Mr Lowseck could have taken to avoid the circumstances of the ATO freezing his bank accounts was for him to make adequate provision for Commonwealth taxes. He did not take that step and therefore he has not taken all reasonable steps to avoid the circumstances that lead to the relevant event and his application must fail.

Order

The decision of the Authority is confirmed.